Interested in a low-risk way to make money?
By lending bitcoin to margin traders, you may be able to generate a steady stream of passive income. In exchange for the opportunity to trade using your funds, investors will pay you interest.
To get started, you will need to familiarize yourself with both the exchanges that offer this form of lending, and also how bitcoin lending works.
The Basics
Every day, investors trade bitcoin using margin, harnessing borrowed funds in an attempt to make more using less. In order to borrow this money, someone needs to be willing to supply it. As a result, some exchanges have set up marketplaces where investors can make arrangements to lend and borrow bitcoin.
Bitfinex
One exchange that offers investors the ability to lend bitcoin is Bitfinex. Through this marketplace, you have the option to lend other investors bitcoin using the exchange’s Margin Funding feature. Features include:
Offer or match: To lend bitcoin on Bitfinex, you can either offer potential borrowers terms, or choose to be matched with borrowers through the exchange’s Financing Order Book.
Customized agreements: Bitfinex allows you to customize your lending agreements, so you can select the amount, time frame, and interest rate you want. For example, if you want to get more regular payments, you can select a shorter duration. By using this approach, you may obtain an interest rate that reflects market conditions.
Auto-renew feature: Once you find an agreement that works, you can leverage the platform’s auto-renew feature to set it up repeatedly.
Keep in mind that if you lend bitcoin through Bitfinex, the exchange’s role is to enforce the fulfillment of any contracts arranged, not to serve as a party in these agreements.
Poloniex
Another exchange that offers bitcoin lending opportunities is Poloniex. To lend bitcoin through this exchange, you can specify the amount you want to lend, as well as your desired interest rate and duration. Features include:
Auto-renew: Just like Bitfinex, Poloniex gives you the ability to automatically renew agreements.
Attractive rates: Daily interest rates on this platform have frequently fluctuated between 0.02 percent and 0.04 percent. When compounded over time and calculated on an annual basis, these minor rates may become far more appealing.
In addition, daily rates have surpassed 1.0 percent during times of high volatility. As a result, lending when bitcoin prices are experiencing large fluctuations from the latest news event may pay off handsomely.
If prices surge, for example, such events may attract the interest of short sellers, who are willing to pay attractive rates for access to borrowed capital. However, these situations can change very quickly, and locking in high rates requires paying attention to detail.
Considerations
Just like any other investment strategy, there are costs and benefits associated with lending bitcoin. Here are some benefits:
- The strategy entails little risk.
- Lending bitcoin is largely automated.
- Interest rates can be appealing.
Here are some drawbacks:
- Your capital will not be available for investing while it is lent out.
- You could generate higher returns using different strategies.
If you want a low-risk way to make money, consider lending bitcoin through an exchange. Using this method, you may be able to generate regular interest payments for lending bitcoin to other account holders. However, keep in mind that you may be able to generate far better returns using riskier investment strategies.
As always, effective investing requires significant research. For more helpful information, subscribe to Bitcoin Market Journal.
