Bitcoin is a very volatile asset. In March 2020, Bitcoin saw its price dip below $4,000 due to pandemic-related market sell-offs before going on a price run-up to over $64,000 in April 2021.
While waiting for Bitcoin’s price to climb higher, there may be instances where you may need funds to pay for living expenses like a leaky roof or a flat tire. Selling your Bitcoin at the wrong point may result in you incurring huge losses or missing out on subsequent large gains.
So how could you remedy this situation? One option available is to obtain a crypto loan by lending out your cryptocurrencies. By doing so, you get to borrow USD (or your national fiat currency) to pay for immediate expenses instead of selling your cryptocurrencies at a potentially low price.
In simple terms, a crypto loan is a cryptocurrency-backed loan that uses your crypto assets as collateral. It works similarly to bank loans backed by securities. Crypto loans can only be obtained from crypto exchanges or crypto lending platforms.
Purposes of Crypto Loans
There are various reasons to take up a crypto loan facility, such as:
Capital for businesses
Earn interest on your cryptocurrencies
Defer tax on capital gains
Hold on to your cryptocurrencies for future potential upside
Below is a simple illustration of other use-cases of crypto loans.