8 Reasons Why Crypto Loans are a Good Investment Strategy
Loans are almost as old as money itself, and investors at some point need to borrow money to fund projects or for other reasons. Banks and several financial institutions have been offering loans since time immemorial, albeit with complicated processes and sometimes scary interest rates. Crypto loans are a new form of loans users can get quickly by using their crypto assets. Crypto loans have gained traction for the right reasons, and more investors now realize their immense benefits. This article explores crypto loans, and how they are beneficial for investors.
How Do Crypto Loans Work?
Crypto loans are essentially loans that users can easily get from their crypto. Crypto loans work similarly to traditional loans, but unlike them, borrowers’ crypto assets serve as collateral.
Suppose John owns 10 ETH (about $43,000 at the time of writing) and has an urgent need to fund a project with say $20,000; he can take a loan in stablecoins instead of selling almost half of his Ethereum holdings. He can find any decent crypto lending platform to deposit his ETH asset and get a loan to execute his project without losing his crypto. Furthermore, crypto loans are very flexible. Users can choose to extend loan durations, borrow more, or even repay loans before the set date and withdraw their assets instantly without losing a dime. The exact process goes for Bitcoin loans or any other cryptocurrency.
Owing to volatility, crypto loans are usually over-collateralized. This means that users can only borrow a percentage of their collateral, typically between 50-90%. Loan-to-collateral or loan-to-value (LTV) ratio differs on lending platforms. For example, Nexo offers 50% while YouHodler offers up to 90% LTV ratio.
How do Crypto Loans Benefit Investors?
Crypto loans are a good investment strategy for several reasons. Let’s look at eight of them.
Nearly all kinds of loans offered by banks—credit card loans, student loans, personal loans, etc.— come with high-interest rates. Crypto loans’ interest rates are much lower, with several lending platforms offering loans at less than 10% interest.
No background checks
Getting loans from banks can be complicated. From credit scores to proofs of identity and bank statements, the process can be pretty tiresome. Crypto loans are far easier to get. Most crypto lending platforms do not require any form of identity; you need only connect your wallet to the platform, deposit your crypto and get the loan.
Loan depends on assets’ value
Loan values depend solely on collateral value to ensure investors don’t go on a borrowing spree to pull an Evergrande eventually. Also, most lending platforms set a price down limit (PDL)— a marked collateral price below which your crypto asset will be liquidated to repay the loan.
Flexible collateral options
Crypto lending platforms offer flexible loan services. You can deposit your collateral and get loans in a myriad of currencies, from fiat to stablecoins. YouHodler, for example, supports more than twenty-five crypto assets as collateral options.
Crypto is arguably the only space where investors can get secured loans instantly. You can get your loans almost immediately after requesting them. There is little to no waiting period, and you get the amount requested.
Anyone can borrow
Crypto lending platforms cater to all kinds of investors. Anyone on the internet can borrow against their crypto-asset without worrying about eligibility checks.
Investors can also lend
Not only can anyone take secured loans with crypto, but there is also an opportunity to stack more crypto on the flip side. Investors can deposit their money in crypto lending pools, essentially providing funds for others to borrow, and earn APY on their assets. Crypto lending is an excellent way to put your crypto to work instead of leaving it idle in your wallet.
Taking crypto loans is a low-risk investment strategy. If the worst happens, that is, you default on your debt, your collateral will be liquidated to repay the loan, and the rest of your crypto will be deposited into your account. Also, you can top up your collateral to reduce the possibility of liquidation.
Conclusion: Are Crypto Loans a Good Investment Strategy?
Cryptocurrencies have been moving in strides, and numerous utilities are being unveiled by the minute. Crypto loans are one of such, catering to every investor at any time and anywhere in the world.
Don’t sell your crypto anytime there’s a need for cash; instead, keep it as collateral to either get stablecoins or fiat. This way, you will not miss out on bull runs when they happen.