There is no denying that the cryptocurrency market has exploded in recent times. Because of this, we are seeing more and more products come to the fore involving Bitcoin and other cryptocurrencies. If you are looking for a loan, whether to purchase a property or for some other reason, you could potentially use cryptocurrency as collateral. If this is something you are interested in, read on to discover everything you need to know.
How does cryptocurrency lending work?
Crypto finance is a loan that has been backed by cryptocurrency and uses the digital currency as collateral, very much like a securities-based loan. The basic principle works like a car loan or a mortgage; you will pledge your cryptocurrency assets in order to secure the loan and then pay it off over time, typically on a monthly basis. This sort of loan can typically be secured via a crypto lending platform or crypto exchange.
While you will keep a hold of the crypto that you own and have used as collateral, you will lose some rights. Therefore, although you still technically own it, you cannot use it to make transactions nor can you use it for trading. Moreover, should the value of your digital assets drop considerably, you may end up owing the lender much more than you borrowed in the first place if you default on the loan.
Why would someone consider crypto lending?
There are a number of different reasons why you may find crypto lending appealing. While these loans may not be as cheap as vehicle loans or mortgages, they do tend to be cheaper than credit cards and personal loans. In a lot of cases, you can secure a crypto loan that has an interest rate lower than 10 per cent. And wherever you are based there will be a finance broker in Dubai, Switzerland, USA, UK, Monaco etc. who can help.
There are some other things to think about as well. For example, you will have a choice of loan currency if you go for this option. Depending on what you need and the platform you use, you may be able to choose what currency you want to receive your loan in. The loan that you receive will also be based on the value of the asset. In a lot of instances, you will be able to borrow as much as 50 per cent of the value of your portfolio. However, there are some exchanges that will be willing to go as high as 90 per cent.
Final words on using cryptocurrency as collateral for a loan
As you can see, it is certainly possible to use cryptocurrency as collateral for a loan. There are a number of specialist lenders who are offering cryptocurrency finance. If this is something you are interested in, it is certainly important to work with a broker who has the required experience, especially as this is one of the newer areas of the finance market, so you need to make sure you choose a lender with care and structure your agreement in the right way to avoid any issues later down the line.
