Bitcoin has been around for 10 years. It has allowed many business opportunities to sprout. There more and more e-commerce businesses starting to accept bitcoin as payment. Also, there are people that are finding new ways to make some easy passive income. Aside from HODLing, there are several ways to make money from bitcoin— some of them include being affiliates to bitcoin marketplace, creating/engaging in bitcoin faucets etc. One of the most underrated ways, however, is lending the bitcoins you already have.
Bitcoin lending is one of the bitcoin trading strategies that seasoned traders have started trying out. These lending platforms come in different sizes and each has its own specific procedure. Bitcoin lending grew in popularity in 2017 due to bitcoin reaching its all-time high in late 2017. The price spike that bitcoin experienced cultivated a prime environment for bitcoin lending. Let’s see what are the best p2p lending sites bitcoin can offer.
What is Bitcoin Lending?
Let’s say you’ve bought some bitcoins and they’re sitting there in your wallet. Instead of watching it grow inside your wallet, you can make them work a little bit and earn you a greater profit.
Basically, you’re taking out a loan to put it into investing in bitcoin. “Loan” here can mean many things, but we’ll get to that later. Like in regular banking, the borrower promises a specific interest rate to the lender. This regular banking concept can apply to bitcoin or any other cryptocurrency. What draws people to Altcoin lending is that it’s cheaper. You can buy full Altcoins at the fraction of a price of Bitcoin. The con to that is, owning a fraction of a bitcoin is much more valuable than owning a full Altcoin.
The concept of bitcoin lending is very simple. It could get a bit tricky sometimes if you don’t know how the risk. Let’s say you take out a loan of $10,000 to buy some bitcoin. You’ll have to wait for the value of bitcoin to go up until you can take that loan back. Otherwise, you wouldn’t be making a profit. In reality, there’s a lot that could happen that could lead you into some serious debt. The process is difficult to make sure to do your research and stay informed. These simple precautions can help you minimize risks.
The goal of bitcoin lending platforms is to provide users with more leverage in their trades. According to Investopedia, leverage is “an investment strategy of using borrowed money – specifically, the use of various financial instruments or borrowed capital – to increase the potential return of an investment.” In layman’s terms, you’re using other people’s money to increase the potential profit.
For example, let’s say bitcoin’s price is at $1,000 per BTC in March 2019 and it’ll be $1,500 by April 2019. If you put $1,000 of your own money into BTC and sell it the next month, you’ll see a $500 increase on your investment. If you borrowed $1,000 AND put your own $1,000 to invest into BTC, you’ll be coming out with a $1,000 return on your investment. Basically, you want to use leverage to increase potential gains.
The Different Types of Bitcoin Lending
Now that you have a gist of what bitcoin lending actually is, it’s time to take you through the different kinds of bitcoin lending platforms out there. It’s important that you know all the different styles of lending out there so that you know which style suits you the most.
In today’s market, there are mainly three forms of lending.
Getting a Loan (in fiat money) to Buy Bitcoin
Remember the price spike of bitcoin in late 2017? After that, lending firms figured that investors desired to own complete coins and they took advantage of that information. More and more platforms emerged. They aimed to provide more liquidity to buy their bitcoin. SoFi is an example of a platform that can help you get access to fiat funds to buy cryptocurrencies directly.
Getting Loans in Bitcoin
Another strategy in bitcoin lending is crypto-direct loans. They skip past through the fiat part of the process and go straight to the cryptocurrency of your choice. There are mainly two types of crypto direct loans:
- Ones that come from lending companies,
- The other involves connecting you and other investors looking to lend you their bitcoin in exchange for some interest – BTCPOP, Bitbond, and Nebeus are examples of platforms that specialize in this strategy
Getting a Fiat Loan Using Your Bitcoin as Collateral
People who have a lot of bitcoins often use this option. If you have some extra bitcoins, you can use those bitcoins as collateral for taking out fiat loans. Inlock is an example of a platform that offers these services to investors.
SALT is another lending platform described as “one of the most legitimate bitcoin lending platforms in the market today”. It offers same-day verification and they don’t require a credit check. SALT has been highly regarded in articles from Forbes, Bloomberg, and NASDAQ.
What’s the Difference Between Taking a Loan From a Bank and a Lending Platform?
Bitcoin lending platforms are there to make our lives easier. Bitcoin lending platforms make the process more secure and accessible. People often lend their bitcoin or actually pay the loan back.
Here are four major benefits of using a bitcoin over a normal financial banking system:
- Better rates – As a lender, there is no fee. As a borrower, you’ll need to pay 1% and 5%.
- It’s quicker – It’s a lot faster for you to get your credit. Normal financial institutions have a higher waiting period.
- Higher bitcoin interest rate: The lender gets a better return on investment. Normal rates are between 3% and 7% per month.
- Hand-approved submission: To reduce the possibility of scams, all of the loan-submissions are checked manually. (NOTE: This doesn’t remove the risks from bitcoin lending, so remain vigilant.)
The Best Bitcoin Lending Platforms of 2018
As said earlier, each bitcoin lending platform has different rates and lending procedures. Although you should take these platforms into consideration, it is still recommended to go through each of them to make sure which one suits you the most (the one that you can comply with the easiest).
These were the best lending platforms in 2018
Bitbond allows both investments and loans on bitcoins. They’ve perfected the entire process and it is now effortless to use. The process doesn’t take a lot of time. Bitbond managed to gather a following despite the company being around for only a few years. The platform allows people to be not only borrowers but lenders as well (provided that you have a good collection of bitcoins at your disposal). This makes them as one of the prominent peer-to-peer lending sites for bitcoin.
As mentioned earlier, BTCPOP is a good platform for getting loans in bitcoin. Just like Bitbond, it’s also a peer-to-peer loan service. The platform offers a live chat that allows the members to discuss topics about the platform. Some of these topics include the risks associated with lending/borrowing, other specific members on the platform, or any other topic they’d like. Some loans on the website are also supported by collateral. This is to make sure that the lender always holds a guarantee against the loss of a principal amount.
XCoins specializes in helping users buy bitcoins through PayPal using their credit cards. This is a big deal because other platforms and services have shunned PayPal. This eliminates all of the competition for XCoins.
On the platform, the process is very simple. Once you’ve registered on the platform, you’ll need to provide and verify proper identification. After that, deposit the US dollar equivalent of the bitcoins you need to borrow.
The Major Problems With Bitcoin Lending
Like anything else related to cryptocurrency, scams are a big problem. Even the best lending sites and services contain this risk. Loan receivers can be vetted and lenders end up being susceptible to scam. The general rule of thumb: if it sounds too good to be true, then it probably is.
One of the biggest bitcoin lending scandals was that of BitConnect. BitConnect was a peer-to-peer lending platform that scammed investors into giving them huge sums of money before they “abruptly” closed its operation in January 2018. BitConnect became very infamous due to its Ponzi scheme strategy and “over-the-top marketing campaign”. Several influential people in the bitcoin industry even took their thoughts to Twitter:
“…From the surface, seems like a classic Ponzi scheme. I wouldn’t invest in it and wouldn’t recommend anyone else to.” Charlie Lee, founder of Litecoin
“BitConnect really seems like a scam. An old school ponzi. Bad actors hurt the community. Period.” Michael Novogratz, a ranked billionaire and ex-hedge fund manager
The cryptocurrency industry is a tricky one and people could take advantage of you if you don’t do your research. To minimize the risk, be sure to learn everything you can before diving into something new.
Not Fully Evolved Yet
Although the concept of bitcoin lending is simple, there are still a lot of problems. According to a report on Lendedu, around 18% of recently purchase bitcoin were bought using credit. The statistics also showed that around 22% of these debts are not getting paid off.
It may be in your best interests to buy your cryptocurrency straight. Always considering the volatility of the price. For those of you that don’t have the patience, or have the trading skills to convert these lent funds, bitcoin lending can be a smart alternative.
What do you think about bitcoin lending? Does it look like something you’d be interested in doing? Which type of loan would you apply for? We’d love to hear your thoughts! Let us know in the comments section down below!