Crypto enthusiasts are often encouraged to “HODL” their assets — keeping them safe in a wallet until the price of their chosen currency appreciates. But just like you’d feel uneasy about leaving your cash sitting around in a bank with a low interest rates, a common question is this: how can you get your digital currency to grow?

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This is where crypto lending comes in. Not only can it enable savers to receive interest on their stash of Bitcoin, but it enables borrowers to unlock the value of their digital assets by using it as collateral for a loan.

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Crypto Lending Explained

When investing, one of the biggest challenges can be cashflow — and there’s nothing worse than having to raid the capital you’ve got tied up in assets for short-term costs and lack liquidity.

Let’s imagine that Steve has 2 BTC. He doesn’t want to sell any of it because he’s confident that prices are going to appreciate substantially. Steve’s also worried that, if he does end up offloading his crypto, there’ll be a risk that he ends up with less Bitcoin when he buys it back at a later date.

‍Crypto lending platforms can come to the rescue here. Typically, Steve will be given the opportunity to use his Bitcoin as collateral — and receive a loan in stablecoins. Owing to the volatility of digital assets, he’ll normally have to “overcollateralize,” meaning he’ll have to lock up more BTC than the overall value of the funds he’s receiving.

‍Once he’s repaid back the loan, plus interest, his crypto will be returned in full — and he’ll make a handsome profit if BTC ended up appreciating as he predicted. His crypto would only be at risk if he failed to keep up with the loan’s terms, or if the value of the Bitcoin held as collateral fell below the value of the loan he received.

‍So… when did crypto lending start to take off? Well, it was right around the time that economies came to a screeching halt in 2020 due to the pandemic. This saw the interest rates get slashed, and lending for big-ticket items take a nosedive. Many people were looking for other ways to make their assets work for them. Crypto loans became a quick and easy way to gain access to fiat currencies almost instantly, all without selling it. All of a sudden, the days of Bitcoin and Litecoin gathering dust in an exchange or cold storage were numbered.

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Unlike personal loans or credit cards, collateralized loans are much more secure for the lender, which enables the borrower to take advantage of cheap interest rates.

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Cryptocurrencies can be very volatile, which is why these loans are almost always overcollateralized. This provides insurance for the lender should the price of crypto plummet. However, this can negatively impact the borrower — especially if the platform they use requires them to always maintain their loan-to-value (LTV) ratio.

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One of the major bonuses many see in a crypto loan is that, unlike traditional banking, you won’t be subject to your credit score being assessed. This means that lending is more accessible to people who don’t have a financial history, underbanked consumers who don’t have a bank account and self-employed workers who struggle to access credit because their fluctuating earnings don’t meet a bank’s strict lending criteria. Repayments can also be more flexible.

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And whereas it can take several days for loans to clear in the old-fashioned financial world, BTC loans can be practically instant. You’ll also be able to make your assets liquid without triggering a taxable event — and you can adjust the loan to suit your needs. Users can also switch between crypto assets, so you could deposit Ether and borrow Tether, all on the same platform.

Click here to pply for your BTC Loan today