LENDING — A low-risk way to let your crypto money work for you
The idea of trading can be pretty scary for newbies.
I had a little advantage when I entered the crypto space because I had spent the whole year before that learning about trading and investing.
All I can say is that trading crypto is so much easier, faster, and well, more fun, too!
But if trading is new and scary to you, and you still want to make your money work for you, then I recommend to start with LENDING.
What does LENDING mean?
Without going into too much detail, let’s just say that sometimes people bet on falling prices. If the prices fall indeed, they win. This is called “going short”.
Most non-traders believe that you can only profit when the prices rise (which is called “going long” in trader-speak) but insiders know how to profit no matter which way the price goes.
In simple terms, this is what happens when someone goes short:
- A trader lends coins from others (for a certain interest rate) when the price is high and sells those for that high price.
- Once the price has fallen, the trader buys them back at the new (lower) price and gives them back to the owner.
- The difference in price is the trader’s profit. S/he is happy.
- The interest received is the profit of the person who loaned the trader the money. They are happy, too.
This is a weird example, but when I first learned about LENDING, it helped me understand it better:
Let’s say a friend of yours is going away on a round-the-world trip for a year and they leave you the key to their car. Once they’re gone, you sell that car to someone else for $10,000.
A year later, just before your friend comes back, you buy the car back for $8,000. It’s been used the whole year, so of course it’s not worth the same as it was a year ago.
You made $2,000 profit.
That feels kind of wrong, doesn’t it?
When I first learned about shorting in the “real world” (aka non-crypto) I was quite upset.
Just like the above example might have upset you. I mean, who would do such a thing — sell off someone’s car without their knowledge??
The thing is, in the “real world”, this is done on a daily basis. Traders lend money to make high profits, and the brokers (who give it to them) take high fees for it.
And who does the money, that they work with, actually belong to? Us.
It’s the money that we save in the bank, or in our pension plans. The money that is “lying around” somewhere. It’s being used to make more money for anyone but us, and we are not even aware of it. When I learned about this I couldn’t believe it was legal.
Making a conscious choice to give loans
So imagine my joy when I entered the crypto world and could suddenly make a conscious choice about making my money available for lending.
If there is no middle man between me and the lender and I will financially profit from it, too (in the form of interest from the lender to me), then why not?
The advantages of LENDING
- It’s relatively safe (apart from the fact that you keep your money on an exchange, which you shouldn’t. Exchanges have disappeared in the past…). So only do this for amounts you consider “small” and could afford to lose.
- It only takes 2 clicks on Poloniex.
- You don’t have to keep checking your funds every day — there are no fast actions required.
- The risk is with the lender. If they bet on the price falling, but then it goes up — it’s their loss, not yours.
- Poloniex makes sure that loans are paid back to you, and that they’ll receive their fees, too. Everything is automated.
- You are not loaning to one particular person, but your money gets included in a general “lending pool” that traders have access to
How much interest can you earn through LENDING?
I started loaning beginning of April 2017. Below you see my results until end of May.
I had been offering half a Bitcoin (on average) for lending during this time — approximately 2 months (7.5 weeks to be exact). The image below shows you an excerpt of my lending history.
As you can see, I made 0.022619 BTC for around 0.5 BTC. That’s about 4.5% over to months.
In other words, I received approximately 2.25% interest PER MONTH.
Which bank offers you that kind of interest PER YEAR these days?
So, as with trading and investing, only use money that you can afford to lose.
You shouldn’t keep a lot on an exchange for a long period of time. A lot means different amounts to different people. Check in with yourself to find out what a lot means to you and how much you are OK to risk.
If LENDING sounds like an interesting way for you to get started earning crypto currency, check out my thorough tutorial on How LENDING works on Poloniex.
About the author:
Anja Schuetz is a cryptocurrency mentor for absolute beginners. She runs the Conscious Crypto Community, which currently consists only of women. Sign up for her free Crypto-Fitness Museletter here.