How crypto lending works borrowers
If you have ever taken a loan from a bank, you know that you need an asset to serve as collateral. The benefit is usually that you will not need to sell the asset to get cash. Crypto lending works in a similar way. Sites such as Delancey Street allow you to borrow money but instead of using an asset like a business or a car to secure the loan, you use your cryptocurrency. Like with a traditional collateralized loan, you will not have to sell your cryptocurrencies.
Additionally, you do not have to pay immediate taxes on your investments. With such a loan, you are able to keep the upside potential of getting it since you are not selling your coins. Should forks occur while you have the loan, the upside is yours. However, since these loans are not taxable, there are no capital gains to report.
The lending landscape has also changed with the introduction of cryptocurrencies. Anyone can lend or borrow instantly, in a frictionless process. You can even crowdsource your loan from lenders and decide your interest rate. The deal is usually to give the lender a profitable interest rate and the borrower cheap funding in a free, peer to peer process.
Should you take a loan?
To draw the line at the facts would be to make a serious assumption on human nature. People need a little more than the cold facts to make a decision. Suppose then you have seen an ICO project you are interested in. You have some of the money you need to make the investment but you still need a top up to make the minimum investment or to make the amount you want. Do you take a loan to make the investment?
Generally, it is a good idea to take a loan to invest. There are loads of people who have made their fortunes by investing other people’s money. Note that this is not financial advice, but an opinion, based on facts and experience. Consider that the returns on investment are high. Some cryptocurrencies have an ROI of 82 000%. If you invested in such a one and held it for a year, you would have enough to pay back your loan, the interest and still remain with a big profit.
Case in point
Take a cryptocurrency that is in use for banks and has a promising future like the DASH with an ROI of 6000% last year. Assuming you take a $10 000 loan for a year and an interest of 50% p.a (for the sake of the example); you will need to pay back $15 000 at the end of the year.
If you invest in a good crypto like Ripple of Ethereum or DASH at 6000% ROI or say even one with a lesser one of 600%, you will have $60 000 at the end of the year. You pay back your loan and remain with a whopping $45 000. Congratulations on your investment!
Now imagine if the cryptocurrency had a higher ROI. Besides, if you repeat the process, you multiply your income and with time, you do not have to pay anything to anyone. Ideally, you would split investments in different currencies. You would be wise not to sell out of panic when the price goes down for a while.
Here is a mantra to live by: ‘The best choice you can make is one that is informed.’ Even when a seemingly better alternative comes up and you cannot figure it out, it might as well never exist.
Finally, never invest what you cannot afford to lose; there is a word for that. It is gambling.