Cryptocurrencies have been around for over a decade. Not everyone understands them, but the lifetime returns are undeniable. Early Bitcoin investors got a rare opportunity, and altcoins like Dogecoin and Shiba Inu have accelerated quickly. Some investors have to sell their crypto to cover living expenses or are frustrated they don’t have larger positions. When you learn how to borrow against crypto, you address both issues. You can pay living expenses without touching your crypto or expand your portfolio with extra cash.
Invest in over 30 cryptocurrencies from your checking account with no trading fees with the Current mobile app crypto feature.
Titan is an investment platform with a team of experts actively managing your portfolio based on your chosen strategy, including cryptocurrencies.
Alto IRA allows you to invest in stocks, bonds, mutual funds, ETFs, real estate, cryptocurrencies, and even gold for your retirement.
What Is Crypto Borrowing and Lending?
Some crypto lenders will give you funds based on the crypto in your portfolio. Lenders establish a maximum percentage you can borrow against your crypto. For example, if a lender lets you borrow up to 50% of your portfolio and have $30,000 in crypto, you can borrow up to $15,000. You can use the $15,000 for anything from living expenses to buying more crypto. Of course, you’ll get charged interest on the debt and eventually have to pay it back. Some borrowers pay it back by selling crypto at a higher price in the future or through their salaries.
How Does Borrowing Against Your Crypto Work?
You can receive money based on a predetermined percentage of your crypto holdings. These funds sit dormant in your portfolio until you invest or withdraw them. You will only get charged interest on the money you borrow against your crypto holdings. In our previous example, we discussed how someone with a $30,000 portfolio could borrow up to $15,000, assuming the lender has a 50% cap. You won’t get charged interest on all $15,000 right away. If you use $1,000 of that $15,000, you will only have to pay interest on $1,000.
Lenders will expect you to make progress with repaying the debt. You have more flexibility over monthly payments and when you pay off the loan. However, if your crypto holdings get too low, the lender can sell positions on your behalf to cover the loan. If your $30,000 portfolio dips below $20,000, lenders may sell some of your cryptos and use those proceeds to pay off the debt. This issue doesn’t happen too often as long as you pay the loan gradually and don’t overextend yourself.
Why Borrow Against Crypto?
Borrowing against crypto has many benefits. Some people use crypto margin to expand their position sizes. However, borrowing against crypto doesn’t only help with portfolio expansion. You may need funds for a short-term emergency expense, but you don’t want to miss out on a crypto rally. You can borrow against some of your cryptos to cover the emergency expense and repay the debt with upcoming paychecks.
You may have a $30,000 crypto portfolio but only need to borrow against $400 worth of crypto to cover the emergency expense. Some people borrowing against crypto don’t do it for high stakes. Instead, they want to protect their assets from short-term costs.
Many traders will borrow against crypto to increase their market exposure. Day traders don’t mind putting all of their margin funds into cryptocurrencies. A day trader may enter and exit a position within a few hours instead of holding it for a few years. While quick exits can limit gains, they protect themselves from the long-term risks of margin trading.
Invest in over 30 cryptocurrencies from your checking account with no trading fees with the Current mobile app crypto feature.
Titan is an investment platform with a team of experts actively managing your portfolio based on your chosen strategy, including cryptocurrencies.
Alto IRA allows you to invest in stocks, bonds, mutual funds, ETFs, real estate, cryptocurrencies, and even gold for your retirement.
Benefits Of Cryptocurrency Borrowing
Borrowing against cryptocurrency has many benefits. We have outlined some of those benefits below.
Low-Interest Rates
Lenders charge low-interest rates for crypto holders. Lower interest rates reduce your fees and make the debt more manageable. In addition, you can quickly get out of some margin, especially if you use it for a small emergency expense or low-risk day trading. Under these quick repayment scenarios, you will pay far less than the set APR.
The Amount You Borrow Is Based on Asset Value
Lenders let you borrow against a predetermined percentage of your portfolio’s crypto holdings. As your crypto holdings grow, you’ll get access to more margin. Some investors use margin to buy more crypto. As these assets rise in value, they may take out additional margin funds to cover expenses or purchase additional assets. Using all of your margin funds to buy and hold crypto is risky. If you balance this strategy with a reliable payment plan, you can mitigate the risks. Regardless of how you approach crypto lending, a rising portfolio creates more possibilities. Investing more money into your portfolio will increase how much you can borrow.
Multiple Loan Currency Options
You don’t have to use Bitcoin to get a crypto loan. Some crypto lenders let you borrow against altcoins, so you don’t have to build a Bitcoin-centric portfolio. This flexibility helps more buyers qualify for loans. Selling other altcoins to get Bitcoin for the sake of margin funds could also trigger significant capital gains taxes on long-term holdings. You can avoid those hassles while getting the financing you need.
Fast Funding
Crypto loans get approved quickly since lenders give you money based on your portfolio’s balance. You don’t have to assemble tax returns, income statements, or any other financial documents. You can receive funding within a few days and deploy the money as you desire. Fast financing can help with urgent expenses and reduce financial stress. Once you have a crypto loan, you can continue tapping into it like a line of credit. You don’t have to file application after application to obtain the financing you need.
No Credit Check
A low credit score can block you out of critical financing. You may miss out on a house, car, emergency expense, or something else. Borrowers with low credit get higher interest rates and may feel desperate enough to take out a payday or title loan. Crypto lenders will not check your credit before assigning loans, presenting a viable alternative for crypto holders.
Since these lenders don’t conduct a credit check, your score will stay the same. You can apply for a conventional loan, such as a mortgage, without worrying about how crypto lending may impact your credit score.
