If you have existing capital that you don’t want to use for a riskier investment like traditional cryptocurrency trading, then you might want to look into margin trading. Margin trading is essentially putting up funds to be lent to other traders.
When you put funds up for trading, you have the freedom to choose the amount, interest, and time allotted to pay it back. Then, when someone borrows from you, they trade your funds for a profit and pay you back with interest. It is possible to put up a few different currencies including both fiat and cryptocurrencies, and the interest you amount will be paid back in that particular currency, be it Bitcoin or USD.
Where can I lend Bitcoin?
There are two major exchanges that offer universal lending services, Bitfinex and Poloniex. It will pay to familiarise yourself with the exchanges as companies as well as their lending service to make the most informed decision. The process and profit of each exchange is pretty similar but there a few subtle differences to keep an eye out for.
One of the cool things about the lending platforms on Bitfinex and Poloniex is the way they let you manage your own lending structures. This means that you can choose whether you want to have your funds paid back fast, or over a period of time, how much interest, and how much the initial loan is. This means you can experiment with different lending plans to see which will reap the most return. And, once you settle on a lending structure that works for you, you can set it up on auto-renew. Meaning it will automatically renew as many times as you like.
When offering funds for lending, you can offer your own interest rates, but the average daily rates on both platforms tend to be around the 0.02 to 0.04 range. Obviously you could offer much higher or lower rates, in which case you’ll likely not get any borrowers, or won’t make a profit, so it pays to stay competitive with your rates. 0.02 percent seems low at first, but over time it can really add up. Especially if you are keeping an eye on the market and strategically lending during a spike in the market. During these spikes, you can attract borrowers willing to pay even higher rates in order to get their share. This average is pretty similar on both Bitfinex and Poloniex, so it doesn’t matter which exchange you decide to lend with.
Both exchanges, however, charge fees on every loan for facilitating the exchange. For Bitfinex, they charge a 15% fee of the interest paid. For example, if you lend 10,000 on a daily auto-renew plan, and charge 0.04% interest, you would be making $4 per day on that investment. Then, your exchange would charge a 15% fee from that $4, which would be $0.60. At the end of the day, you would take away $3.40. This doesn’t sound like much, however, since its such a low-risk investment, which you can put on an auto-renew plan, its essentially totally passive income. Plus if you want to maximize your earnings, you can strategically change your offer depending on the market throughout the year. And, you can switch your currencies based on which ones are spiking and dipping.
Lending Bitcoin can potentially maximize your earnings from an investment and be a low-risk route to make money off your Bitcoin, without the risk of regular trading. There is, however, a theoretical risk for lenders. In the event of a rapid drop in the price of Bitcoin, or whatever currency you are lending, the loss could affect your account. Bitfinex claims that this has never, happened, and is highly unlikely to ever happen. But the possibility is present nonetheless. It really comes down to keeping yourself informed and weighing the benefit of reaping a higher reward than any traditional savings account, versus the subsequent risk that comes along with that.