Why crypto loans?
Any cryptocurrency is a fast-growing but volatile asset. That is why this way of investing and saving has so many fans and haters at the same time. Many people associate crypto assets with dishonest projects, and, unfortunately, the market is not finalized in terms of the law. Therefore, it is too early to say that crypto deposits will serve as a full-fledged substitute for bank deposits. However, they may become a worthy alternative for saving and accumulating money, allowing diversification of risks. But are cryptocurrency loans worth it?
Even now, at least three significant advantages can be identified:
- Higher interest rates. For example, stablecoins are almost equivalent (taking into account exchange commission) in value to fiat currencies. Roughly speaking, you can keep funds in a bank account in dollars and receive from that 0.2% per annum, and you can have savings in USDT on the exchange and earn up to 20% without reference to the period.
- The possibility of quick withdrawal without loss of interest. The period of savings can be chosen from several days to several months. Accordingly, the cryptocurrency can bring additional income on the days when it is not involved in trading on the exchange.
- A much larger list of assets to invest in.
You already have cryptocurrency, but you don’t want it just lying around in your account – you’re ready to try making money. If you’re tired of banks constantly changing deposit terms and introducing fees. Many people are afraid to make money on cryptocurrency because of unreliable types of investments: the fashion for NFT, news about “hype” altcoins, or the risk of high-frequency trading. However, cryptocurrency can not only be stored securely but also produce a profitable percentage. Safer DeFi tools, which are undeservedly little talked about, will do the trick.
What will change the cryptocurrency industry?
A momentous event happened in the cryptocurrency world: Coinbase, the world’s second-largest exchange by transaction volume, took out a loan secured by bitcoins. The money was provided by Goldman Sachs, one of the largest investment banks, which for many, embodies Wall Street. Such deals have become commonplace in the crypto industry and have even spawned a separate field – decentralized finance, or DeFi.
But classical financial institutions were still afraid to deal with cryptocurrency in lending, considering it too risky an asset with constantly changing rates. Market participants see this as a breakthrough that could lead to the close integration of fiat money and cryptocurrency shortly and, with them, the two financial systems.
High-frequency trading
A way of earning in which cryptocurrency trading occurs automatically based on algorithms. Special programs analyze even tiny changes in asset prices and fix which exchange to buy at a lower price and which to sell at a higher price.
How it works: the programs are needed to fix the short gap between the rates of different cryptocurrencies. Sometimes the imbalance lasts for several milliseconds. During this time, the robot, acting on the algorithm, buys and sells several cryptocurrencies, earning interest on the difference in the rate.
Professionals in high-frequency trading use three categories of software:
- Bots that work by algorithms
- Trading robots with machine learning function
- Robots-advisors that tell you where to sell and where to buy.
For example, you buy 1 bitcoin for 10 Ethereum coins, then exchange it for 100 litecoins and buy 1.1 bitcoins with them. The commission is less than 0.1 bitcoin, so you make money. Investors themselves write bots to make such purchases: one of them told me that he was able to earn about 11% in 60 hours of trading. It is worth reminding that high-frequency trading is associated with high risk. In August 2012, an algorithm mistake in the U.S. company Knight Capital Group led to a loss of $ 400 million on the stock exchange.
ICO (Initial Coin Offering)
The initial offering of a cryptocurrency by a start-up company or startup to attract investment. Almost the same as a company’s initial public offering (IPO), but with a cryptocurrency exchange. Initially placed coins are called altcoins.
How it works: A startup or company plans to raise additional funding through an ICO. This can be done in several ways.
- Place the coins and promise investors that they will raise the price due to the popularity of the project
- To write a smart contract for the coins, buyers get a percentage of the future company and promise investors that it will go up in price.
- Sell the coins to investors for a small price with the promise to buy them back later – and thus recoup their costs.
More often, investors prefer to either invest in promising tokens to sell later or choose tokens in exchange for a stake in the company. This method of attracting investments gained popularity in 2017 and led to the fast-growing popularity of Ethereum cryptocurrency. The main disadvantage of this method is the high risk of falling for fraudsters. Unlike going public (IPO), where you need to collect a lot of documents, in the ICO, any startup can put up its tokens.
Users invested in projects that did not have a competitive product, although they had already raised funds for the launch and marketing. It also turned out that about 80% of the ICOs conducted five years ago were fraudulent or at least not safe.
Coinbase’s services
Founded 10 years ago in San Francisco, Coinbase has a reputation as a cutting-edge company and stands out even in an inherently innovative cryptocurrency environment. The site is not headquartered, and all employees, of which there are currently about 3,700, have been working remotely since the beginning, long before the coronavirus pandemic. Already in its second year of existence, Coinbase had more than a million customers. Now the number of unique visitors – through the site and app – is 2.1 million.
The company’s market valuation reached a billion dollars, and four years later, it exceeded 100 billion. In professional circles, Coinbase has gained the unofficial status of “the blue chip of the cryptocurrency world. In traditional economics, “blue chips” are usually defined as the largest, most well-known, stable, and reliable firms. A year ago, Coinbase entered one of the largest U.S. exchanges, NASDAQ.
And although on the first day of trading, quotations plummeted by 22% due to a sharp fall in the bitcoin exchange rate, the offering still made a lot of noise. It was realized through the procedure of direct listing: not the new issue of shares got on the exchange, but the existing securities owned by the founders and the first private investors. It was they, not the company, who received all of the proceeds from the offering. Even after the collapse, the value of shares exceeded the starting price set by the issuer and organizers: from the initial $250 apiece, the quotes went up to $381, then up to $428.93, and only then fell to $298.
At the beginning of Coinbase’s existence, clients were offered to buy and sell bitcoin, which weren’t in great demand back then and were known only to a limited circle of investors via bank transfers. Now its users can conduct transactions with more than 50 different cryptocurrencies, store crypto assets in a special wallet, and online retailers can accept payments in cryptocurrency. Coinbase also has its Stablecoin – USD Coin, like many others, pegged to the dollar at a one-to-one ratio.
In addition, Coinbase has created its system of secure storage of cryptocurrency and implemented insurance of the value of assets in customer accounts, which allowed it to poach users of other crypto exchanges, worried about mass cases of theft of property, and even absorb some competitors. From its inception, the site’s executives have emphasized in every way that they strive to strictly comply with U.S. laws and block all suspicious transactions.
Conclusion
So, are crypto loans worth it? CoinLoan is an international fintech project founded in 2017 and based in Tallinn. the platform is used by thousands of people from 160 countries. The company is considered the best representative among similar projects. CoinLoan specialists provide their assistance in digital asset management.