Many have been wanting to jump on the cryptocurrency craze. When Bitcoin first made its headlines, people started throwing money left and right just to own a small piece of that Blockchain. Despite this crypto rush, many people still don’t understand critical concepts of crypto investing, which platforms to use, and what to expect from investing in a decentralized infrastructure. As an investor, you should always fully understand what you’re getting into. If you managed to own some cryptos in your wallet, congrats! You are now part of a new digital revolution. Now what? Go back to your normal life? Well, it turned out that while holding cryptos is a good strategy, there are many other ways to maximize your profits like the newly established Crypto Lending protocols, and that’s exactly what we’re going to discuss in this article. Let’s unleash the Warren Buffet spirit in ya, crypto style!
Buying Bitcoins is not always a Wild Ride
You might be wondering, how isn’t owning Bitcoin enough? The answer is very simple: In the investing world, you cannot just purchase one stock and sit on it. You always have to be financially on the lookout and seeking new ways to optimize your portfolio. This applies to everyone, even if you’re holding Bitcoins since pre-10K prices, and here are two case scenarios that prove this specific point:
If you are a long-time hodler, you’re most probably sitting on your profits. Good for you! But good investors look at the time horizon and assess each financial month. What happens when Bitcoin prices consolidate for an extended period? What about if prices enter an extended bearish period? In fact, Bitcoin prices (along with the entire crypto market) entered this phase many times. In figure 1, we can clearly see multiple occasions where prices were consolidating for years, in turn stalling profits and having lost opportunities. Shame, GOT style.
You just entered the crypto sphere as a new trader and want to partake in this exciting journey. Welcome aboard! Now look again at figure 1. See where you’re entering? Exactly, that’s a bit way too high for an entry price. Even if analysts predict further highs, a bear market is inevitable in any market. There will come times where you have no idea how to increase your crypto portfolio other than buying some more, while markets are moving down. Welcome to the real world.
What’s the solution you might be asking…Great question! We’re not saying don’t buy Bitcoins or Altcoins right now. in fact, it’s the complete opposite. There are many activities to do in such times, that hedge those consolidation periods, or even those bearish markets. One newly developed infrastructure is Crypto Lending, bringing legacy finance to the decentralized world.
What is Crypto Lending?
In the traditional world of Finance, people have the opportunity to open a savings account in the bank, and earn interest. How is this possible? Well, the bank takes this money and loans it to people who need an additional income. Those borrowers will return that money at maturity, along with an interest that would be split (unfairly) with you, the lender. Enter Crypto Lending, where the same happens using cryptocurrencies lending instead of cash, and a decentralized space instead of banks. This infrastructure came to be thanks to this developing ecosystem of Crypto Trading, as more and more liquidity is being needed from a borrowing side to satisfy short-sellers needs. In short, more people are looking to borrow!
Crypto Lending is a way to make profits from your crypto holdings, paid out in your respective crypto. In layman’s terms, you basically give this 1 BTC out to a borrower, and receive it back with some more BTC in profits….Sweet! This is all handled by a third party, which can be a centralized company or a decentralized infrastructure such as DeFi.
“DeFi lending has radically democratized an industry that until now has been dominated by massive institutions.“
So let’s assume you have 1 BTC sitting idle in your wallet. The market happens to be in consolidation mode, or even worse, prices are dropping as part of a downtrend. You will still be owning 1 BTC no matter what for sure, but how about having 1.1 BTC instead? This way you hedge the fall in prices, and your portfolio’s worth will be way more once prices recover. How to do this? Simply by lending this 1 BTC and holding (that same HODL experience you like, but this time you’re making profits in BTC despite falling markets).
From a borrower’s perspective now, you can also apply for a crypto loan, provided you pay back the amount borrowed plus an interest AND put crypto collateral aside. It’s no different than what banks do, where they make sure you have money or take collateral such as lands, cars, salaries…or even your own home sometimes.
How to choose a Lending Platform?
Whenever you need to engage in a new activity, be it getting a new haircut from a new barbershop, or even asking about a bank’s service, you go on the interwebz and check reviews. The same thing applies to Crypto Lending. To find the perfect Lending Platform, you would need to study the following aspects for each platform:
- Company Complaints
- Compare Interest rates vis-a-vis other competitors
- Check Collateral requirements
- Check languages supported
- Identify the cryptocurrencies offered on the platform
The above study points are just the tip of the iceberg and require extensive research. It is an essential activity to be made before engaging with any platform. But fear not, there are many resources available that consolidate all those lending platforms and give you the information you need all in one place. CryptoStudio is one solid resource where you might want to dive deeper into their platform-specific details and reviews. They basically do all the hard work of researching what’s the best out there, so you end up with easy steps such as signing up, creating an account, funding your account, and start earning. It’s as simple as ABC, but for adults.
While holding cryptocurrencies is a great way to diversify your traditional currency holdings, delving into DeFi and Crypto Lending is a bonus to diversify your crypto holdings. Idle cryptos in wallets is a dead strategy when markets are down or even neutral. Instead of exchanging part of your salary to gain more cryptocurrencies, it is time to think of smarter ways such as Lending your cryptos to make more cryptos. In the future, the whole infrastructure of Crypto Lending would definitely improve and becomes more solid, but the attractive interest rates would certainly decrease.