For the longest time ever since the introduction of digital currencies, a popular strategy among crypto enthusiasts was HODLing. It is one of the safest ways to earn from your digital assets since you only need to keep your cryptos safe in a wallet until they appreciate. Then, you can cash out and earn some profits.
However, just as keeping your money in a savings account is often frowned upon, HODLing may not be an ideal strategy. Thankfully, the crypto space has evolved so much over the years that there are several better options to choose from. One of these that is quickly gaining traction among the community is cryptocurrency borrowing against collateral. The practice grew exponentially in 2020, thanks to the slashed interest rates resulting from the global pandemic.
So, what exactly is crypto borrowing, and how does it work? Stick around for some insightful information.
Why Should You Borrow Cryptocurrency?
The number of investors going into cryptocurrency keeps increasing as the crypto price skyrockets. If you’re probably wondering why you should consider borrowing cryptocurrency, the reasons below could change your mind.
1. Minimized Risk Due to Price Volatility
The potential increase in cryptocurrencies’ values, along with the prediction of their continued rise, has made the sale of digital coins less appealing. HODLing is the best option at present and hence the idea of borrowing cryptocurrency.
Investors have the opportunity to use their cryptocurrencies without necessarily having to sell them to purchase something. It all lies under pledging their crypto as collateral to obtain a loan. They then can use this loan for their day to day needs.
Crypto investors contain risk exposure to their assets by borrowing cryptocurrency and receiving funds without selling their HODLings.
2. Saving on Tax
All transactions in cryptocurrency are taxable events. Crypto loans as collateral, however, are not classified as trades and therefore not taxable. By borrowing cryptocurrency, you can access liquidity while keeping your crypto holdings at the same level of ownership. Furthermore, for more than 12 months, crypto owned by the same owner qualifies for preferential long-term capital gain tax rates, including for any period spent on collateral. It is because when you repay your loan and sell your crypto downstream – a reasonable proposition, especially in high-tax states such as New York – you will almost certainly qualify for those better rates.
3. Crypto Hedging (Short selling)
The other advantage when you borrow cryptocurrency has to do with crypto hedging. Crypto hedging provides a way to mitigate market volatility risks by maximizing gains and minimizing losses for investors. Through short selling, a hedging strategy, investors can retain their ownership and make some gains over their digital coins.
So, short selling is a process in which cryptocurrencies are borrowed and sold in anticipation of a decrease in their value. You can borrow cryptocurrencies directly from lenders and sell them if it is anticipated that digital coins’ value will pile up. And then repurchase them and retain the difference as a profit at a lower price.
4. Easier to Acquire than a Traditional Loan
If you haven’t experienced the hassle that comes along with securing a bank loan, then you have heard of its victims whining day in day out. From the lengthy documentation procedure to the background checks, these are just a few of what you have to go through with banks.
Cryptocurrencies, on the other hand, are too liquid and can be sold or purchased by anybody. In the case of a loan default, the lenders can be confident to monetize collateral from clients who borrowed cryptocurrency loans. It reduces their risk and allows them to simplify the loan for you much faster.
5. Additional Tax Benefits
Depending on how you invest the money you borrow against your crypto assets, you may be liable for extra tax benefits. That’s because those investment-related costs are tax-deductible against your net investment profits.
Thus the interest paid on the lending is an investment interests expenditure if you use the borrowed cryptocurrency for other assets, such as equities, shares, additional crypto holdings and real estate investment property. You can then subtract this from your total taxation account.
How to Borrow Cryptocurrency on CoinRabbit Platform
After establishing how advantageous borrowing cryptocurrency is, we can now dive into a platform that lends the best loaning services. CoinRabbit is a service that lets users borrow cryptocurrency easily and securely. It doesn’t ask for any registration or credit checks and its services can be accessed by users free of charge. Folks can avail of a loan from just 30 USDT, and all the repayments are straightforward. With CoinRabbit, all your money is safe and insured.
Users can only receive USDT when they borrow cryptocurrency and give BTC/ETH for collateral. It is because USDT is a reliable currency, and as a Stablecoin, it’s very close to fiat and allows many great trading options. However, the platform is adding many more coins as loan and collateral options and even fiat money for the former.
Steps to Acquire a Loan on CoinRabbit
The process of securing a crypto loan on the platform is easy and takes only 5 minutes. Below is a breakdown of the steps you need to follow.
1. Choose the currency and collateral
The first step is to open the CoinRabbit platform and choose which crypto you’ll use as collateral and enter the loan amount. You also have to choose whether to receive the loan as USDT or USDC. For the collateral, you can use BitcoinCash, Bitcoin, Ethereum, or Nano.
After entering the above details, the loan calculator will display how much cryptos you’re going to receive.
2. Confirm your phone number and wallet address
Then, go ahead and confirm your phone number and set your wallet address where you’d like to get the crypto loan.
3. Send Collateral
The next step is to send the collateral amount that you chose. You can do it from your wallet.
4. Wait for the Loan amount
Finally, after the CoinRabbit team processes your collateral and finds everything is in place, they send the loan right away. In all the steps, you get to track it online on the same tab.
- Unlimited loan term: There is no set period given to repay the borrowed cryptocurrency. You choose when to repay.
- Low-interest rates: CoinRabbit only charges 5% per annum for borrowing cryptocurrency than the 8-10% as other services. There is also a small commission for transactions ($ 3 to $ 10) depending on network load.
- No monthly payments: The platform does not charge interest every month – you only pay 5% per year when you pay off the borrowed cryptocurrency. You can track this amount in your account.
- Short waiting time: In just 10 minutes, you can receive your loan.
- Collateral payment at the original exchange rate: To repay your BTC or ETH, you must pay the initial borrowed cryptocurrency amount + interest rate regardless of BTC or ETH’s current rate.
- Low minimum loan amount: You can start with 30 USDT for ETH as collateral and 80 USDT for BTC.
- No limit to the loan amount: You can borrow as much cryptocurrency as you want and even increase the crypto loan amount as you wish.
- Secure collateral storage and instant return: the platform takes care of your crypto carefully, and it is sent back immediately if you want it.
How Secure is CoinRabbit?
When it comes to borrowing cryptocurrency, you need to know that your collateral is in safe hands. CoinRabbit stores all funds in unique wallets, and private keys can only be accessed by a few IP addresses and a VPN link in secure storage. All wallets are refreshed each month with private keys. Every second, the risk management system monitors all wallets.
However, it does not have regulatory control and is problematic in the event of any legal redress. It is also worth noting that as you go ahead to get a crypto loan, CoinRabbit does not use a custodian of third parties.
All in all, CoinRabbit has an excellent chat support system that is available throughout the website at any time of the day. They can answer all your questions on borrowing cryptocurrency. Users can email [email protected] to the team too. The support team works round the clock to ensure that its clients get the best of their crypto borrowing services.
There are, however, several advantages for those who want to borrow cryptocurrency, gain interest on stored cryptographic assets or get away from bankers. The decentralized financial industry is still young, and offers will become more comprehensive, more commonplace and more available to everyone soon including crypto loan services. Also, you need to do research on crypto lending platforms and how to get a crypto loan before tossing yourself in, and borrowing cryptocurrency.
Meanwhile, the support and adoption of cryptocurrencies continue to explode. Digital currency is often incorporated with the integration of blockchain technology to attain decentralization and regulated productive transactions. Blockchain offers decentralized, fast, open, safe, and accurate transactions. With these advantages of blockchain and cryptocurrencies, businesses invest and partner with other companies to offer reliable and quality services to consumers such as borrowing cryptocurrency.