Cryptocurrencies have taken the financial world by storm, setting an unparalleled record in human history. Indeed, they have become a magic wand for many.
Bitcoin, widely recognized as the first cryptocurrency, has played an instrumental role in developing and evolving other digital currencies. As such, it is widely regarded as the pioneering cryptocurrency that revolutionized the concept of decentralized digital currencies.
The Origin of Bitcoin
Bitcoin (BTC), created in 2009 by an individual or group using the pseudonym Satoshi Nakamoto, introduced the concept of a peer-to-peer electronic cash system that operates with a government, financial institution, or central monitoring authority.
The blockchain, a technology employed by Bitcoin to completely revolutionize the way financial transactions are recorded and verified over this decentralized network, has been up and running for years, making Bitcoin very reliable for higher values of financial transactions.
Over the years, Bitcoin’s success in the financial sector has given rise to a breed of coins known as Alternative Coins (AltCoins).
Although it has been tagged as profitable, Bitcoin has been widely regarded as volatile and risky for even risk-averse investors.
Despite this risk, its demand over the years has been on the high side, and investors now see it as a long-term investment, preferring to buy and hold “HODL” until it reaches new price highs.
Bitcoin (BTC) investors are well aware that the road to profitability with the digital currency is not straightforward. It's a rollercoaster ride of dips and highs that often requires patience and diligence.
Investors must make tough decisions, either holding on through the tough times or selling at strategic points to minimize losses. In short, it's a game of risk and reward that demands a certain level of expertise to navigate successfully.
By doing any of this, one surrenders part of his BTC holdings, reducing his earning potential.
During these times, many desire to “buy the dip”; they acquire more BTC from others willing to sell off, thereby increasing their earning potential in the long run.
In recent times, many have found a way to access much-needed funds without selling their BTC. BTC Loans give intending users access to liquidity without them having to sell their holdings.
How does a Bitcoin loan function?
Bitcoin loans are a way for investors to leverage their holdings. BTC owners can borrow cash using their Bitcoin as collateral through crypto lending platforms and get a Bitcoin loan. These platforms also allow users to earn interest by lending out their Bitcoin.
In this loan scheme, holders pledge their Bitcoin holdings as collateral and receive loans in fiat currency like USD, EUR, or other cryptocurrencies.
Your pledged BTC remains with the lender until the debt has been repaid in full, plus interest. Defaulters often lose their BTC as the lender sells it to cover the debt.
Since 2020, crypto lending has grown dramatically, with billions of dollars locked across various platforms. This rapid rise reflects the increasing popularity of this financial tool for Bitcoin holders.
Why do people consider BTC loans?
- BTC HODLers are known for their long-term strategy of locking their investments for a long period, and this loan allows them to access fiats without losing their BTC through selling off, thereby potentially missing out on future price appreciation.
- Many take BTC loans to leverage other investment opportunities they don't want to miss. They take loans, invest in other opportunities, and then pay back when the yields start. This strategy is only disadvantaged when the investment fails.
- To leverage on volatility. After careful market analysis, many people take BTC loans to buy another promising coin just to cover for a potential dip in BTC’s price.
BTC lending
Apart from using your BTC as collateral to borrow funds, you can also lend it to others to earn interest on your holdings.
Nowadays, many platforms facilitate the connection between lenders and borrowers with different interest rates and loan durations, making it possible to earn BTC passively.
Adding BTC lending to your investment portfolio provides you with an extra layer of diversification.
Things to consider before lending or borrowing Bitcoin
- Pay maximum attention to loan to loan-to-value ratio, as this clearly explains the maximum loan that a collateral in BTC can receive.
- Interest rates vary from platform to platform and during specific periods. Borrowers or lenders should compare the interest rates before taking Loans.
- Borrowers should pay attention to market fluctuations during their lain period, as this can affect the amount paid. If the borrower refuses to pay back, BTC will be liquidated.
- Lenders should consider the security and integrity of the platform they use. Before embarking, ensure that measures have been put in place to secure your holdings.
Where to get a bitcoin-backed loan
Several lending platforms have dedicated themselves to linking lenders and borrowers; some are free Bitcoin loans. A few of these include;
- Centralized cryptocurrency exchanges like Binance and Crypto.com allow users to borrow fiats using their crypto holdings as collateral. These platforms have become user-friendly over the years and offer competitive interest rates that users can appreciate.
- P2P platforms like Hodlnaut and YouHodler offer direct connections between lenders and borrowers through their P2P platforms. This encourages lower interest rates since the competition is high, but they often lack the verification prowess and certainty of the lender or borrower.
- Decentralised financial protocols, like Compound, allow BTC holdings to be used as collateral for loans without any form of centralised party or body. DeFi platforms bring the spice of flexibility and efficient control to the lending scheme.
Conclusion
Bitcoin's value can soar, making it a great investment. Plus, it's a rare digital currency you can use anywhere. The problem? Selling it for everyday bills means missing out on future gains.
Bitcoin-backed loans come to the rescue! These loans let you borrow cash using your Bitcoin as collateral, so you can keep your investment and cover expenses.
Different platforms offer these loans, so be sure to compare them to find the best fit for your needs.