Wall Street elites are also interested in trading Bitcoin. Cryptocurrencies play a crucial role in the trade market because of its extreme volatility nature but can be used as a means of payment, especially when anonymity matters during payment. Traders find volatility very appealing, especially long-term investors can enjoy massive gains from Bitcoins’ increasing value. Moreover, investing in loans also helps to grow your Bitcoin.
Bitcoin works differently than fiat currency, so does BitCoin loans. Every Bitcoin borrowed comes directly from lenders. Bitcoin backed loans are available in several forms.
- Margin BTC Loans
- Collateralized P2P BTC loans
- Non-collateralized P2P BTC loans
Let’s learn all these three in detail to understand how to invest in them safely.
Margin BTC loans
If the borrower’s collateral loan goes below a specific margin percentage, then the exchange sells it and returns the Bitcoin + interest to the lender.
How to lend your BTC and earn interest?
You can lend your BTC through Margin loans safely. Many crypto exchanges allow such kind of leveraged trading. There are lenders interested in lending their crypto-asset in exchange for interest. Borrowers can borrow these crypto-assets and increase their trade capital and potential profits. The lending process includes –
- Just deposit
- Move money to lend
- Lend at your terms and interest rates
As an investor, you will need to determine what interest rate you are keen to lend your BTC and for what duration. Risks are also high as the rewards!
Rewards Annual percentage range is 1% to 250%. Risks include exchange collapse or hack, BTC gets tied up so you cannot borrow loans or sell, etc.
Collateralized P2P BTC loans
P2P BTC lending has seen some hard phases but it has survived and developed. When you lend your BTC for P2P, then your ROI decreases significantly.
Reward APR range can be classified as –
- Very low risk – 8% to 12% [100% + collateral]
- Medium risk – 12% to 20% [100% or less]
- High risk – 20% and above [less than 50% loan amount or less preferred collateral types]
Risks include platform collapse, default, tied up BTC, collateral price drop, etc.
Non-collateralized P2P BTC loans
When Bitcoin was stable and young this concept worked very well. As cryptocurrency got popular and highly volatile defaults on BTC loans hit the roof. Borrowers decided not to repay their loans and waited for the price to increase, so they could make profits.
With default issues experienced in the past, it is necessary to be cautious during P2P Bitcoin lending. Allocate a small fragment for this kind of loan. The borrowers must not be strangers or your strategy can fail. While investing in this type of lending there is no strategy, research and spread funds thinly amongst multiple borrowers.
Reward APR range is defined as:
- Low-risk borrowers are those with a long history of good repayment – 15% to 20%.
- Medium to high-risk borrowers – 25+%
Risks include exchange bankruptcy, default, the decline in collateral rates, or your BTC cannot be liquidated as it is tied up.