Short Selling Crypto Loans: A New Lending Frontier

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Cryptocurrency has rising popularity, which is growing each day rapidly. This is not a surprise since more pieces of news are appearing under the influence of personalities like Elon Musk or different governments, which start to regulate this market. Mostly, crypto-assets like Bitcoin are highly volatile, they can rise and fall tremendously within a day, or DOGE, which reacts after Musk’s tweets. 

Crypto loans were introduced quite a while ago and had admiration from crypto owners since they can be a way of earning. Borrowers use digital assets as collateral for loans, similar to how a house or a car is used as collateral for a mortgage or auto loan and once the loan is approved, users receive their stablecoins such as USDT or USDC. 

But what exactly are short-selling crypto loans?

How does it work?

Crypto to Crypto loan

Crypto loans are not a new feature. You could previously try it out with our platform, which offers to take loans both on bullish and bearish markets. It allows you to spend your cryptocurrency without selling it.

But what are short-selling crypto loans?

It operates in the same way as traditional crypto loans. Instead of stablecoins, at this moment you can acquire Bitcoin, Ethereum, Digibyte, or Dogecoin, which you can then sell for a profit in the future. The customer will receive the crypto immediately after depositing their collateral, excluding stablecoin as a bridge between two currencies. 

Why consider short selling crypto loans?

Why consider crypto-to-crypto loans

Short-selling crypto loans can be considered in a situation where the client predicts or has some insights that the coin they would like to get as a loan will lose in price. If it does, there is an opportunity to sell the coin and get more of it in the dip. Basically, this works for the bearish market.

Here is an example: Our client decides to put their Bitcoin and get Dogecoin as a loan. They put the BTC on CoinRabbit as collateral and get 50% of a loan, according to our platform’s LTV level, and get Dogecoin. A client can sell their DOGE and wait till its price falls and when it does – get some more DOGE, even more than they’ve got from our platform. In the end, the client closes the loan, giving back the DOGE they got plus the fee, or APR (Annual Percentage Rate), and staying with his BTC and DOGE.

1 month Dogecoin to USD Chart
Source: CoinMarketCap

If we take into account this chart of Dogecoin’s price for the period from 7th of October to 30th of October, it can be seen that its price dropped the most on October 27th. If a client had taken a loan against DOGE before it, then it would have been possible for them to get profit from it by selling the tokens beforehand and buying some in this exact dip. 

Everything said above basically means that clients get more crypto without paying for it.

Unlike regular crypto loans, where you can lose your collateral when it hits the liquidations price, there are such losses. However, there might be some risks. So, what are they?

What are the risks?

What are the risks?

Before we explain the risks, let us remind you of the loan-to-value ratio, or simply LTV. This ratio is a financial phrase used by lenders to represent the loan-to-collateral value ratio. In other words, Loan-to-Value is the assessment of the loan debt in relation to the value of the collateral asset (LTV).

In both cases of crypto loans with the CoinRabbit platform, collateral is volatile and you get 50% of it, as we mentioned earlier.

With regular crypto loans, when your collateral’s price decreases, the LTV may get higher than the liquidation level, then your loan will be automatically closed and the collateral will not be able to be gotten back.

With short-selling crypto loans, loan-to-value does not work the same way. If the loan’s price rises, then it gets closer to the liquidation level. Due to that fact, the loan will be closed when the collateral price will reach the liquidation level.

Even if the short-selling crypto loan is automatically closed and you lost your collateral, you will still be left with your loan funds.
Although, in both ways, CoinRabbit helps their clients to avoid that risk by notifying you multiple times via SMS notifications when the current rate approaches the liquidation price.

A real example of getting profit with a short selling crypto loan

Short Selling Crypto Loan

Here is the simple explanation of short selling crypto loans with the bear market with the help of CoinRabbit loans:

1. For example, you have 0.0856 BTC and get a 10.000 DOGE loan from CoinRabbit for depositing your Bitcoin.

2. The price of DOGE at the time of getting the loan is $0.2665. You sell or exchange 10000 DOGE at this price. For such sell, you get around 2665 USDT

3. A month and a half later, during the cryptocurrency market’s continuing downswing, the price of DOGE dropped to $0.17.

You buy more DOGE at this rate – for 2665 USDT you get 15676 DOGE

4. With such a market move you earn 5676 DOGE difference from the moment you get the loan from CoinRabbit.

5. Now you want to close the loan and bring back your deposit.

6. The annual loan interest rate is 14% (APR). Since you paid off the debt in a month and a half, the interest accumulated is just 233 DOGE.

7. You send the repayment amount for your loan to CoinRabbit which is 10233 DOGE and get back the 0.0856 BTC deposit.

8. Total profit is 5443 DOGE (that is $925 at the moment). You can sell it or hold and wait for the right moment.

Step-to-step guide on how to get a short selling crypto loan

Today, crypto loan platforms like CoinRabbit have significantly simplified the loan application processes. To get a crypto loan today, all you need to do is navigate to CoinRabbit’s home page and follow the steps below. 

  1. On the homepage, choose Loans.
  1. Under the Loan calculator section, select your prefered collateral and loan currency you would like to get;
  2. Enter the amount of your asset you want to deposit as collateral, and the Calculator will show you the Loan Amount you will receive and Click “Get Loan”;
  3. After clicking “Get Loan,” we will ask you to confirm the details, enter your wallet address, and verify your phone number;
  1. Next, send the collateral to the displayed address. After we receive it, the loan will be sent to you immediately.

Additionally, there is a video on our YouTube channel, where we showed how to gain profit from Bear Market Loans. All the necessary instructions you can find down below.

If you still have any questions you can always contact our team and customer support on our website and we will gladly help you. Or join our telegram group.

Rethink forward crypto loans with CoinRabbit.

Not financial advice. Do your own research and take everything moderately. Crypto-backed loans have their own risks that should be taken respectively.