Bitcoin News

Is There a Danger in Cryptocurrency Lending?

Is lending your cryptocurrency a good idea?

While Bitcoin and cryptocurrencies have made great strides in recent years in becoming more mainstream, there’s still a lot of work to be done in order to make cryptocurrency something that’s completely normalized. And with growth in the cryptocurrency industry stabilizing, cryptocurrency firms are doing everything they can to bring in new business.

One of the world’s largest cryptocurrency exchanges, Binance, is doing just that by offering interest on customers’ cryptocurrency deposits. Those customers who deposit Ethereum, stablecoin USDT, or Binance’s BNB cryptocurrency can receive annualized interest rates of up to 15%. That’s a massive amount of interest in an era in which government bonds are only paying 2% and stocks continue to stay in the same range they’ve been trading at for over a year and a half. But are those interest rates feasible?

Binance is also planning to offer margin trading facilities, charging interest to borrowers of various cryptocurrencies. While the company could possibly profit off the spreads between those interest rates, there’s a real danger that they lend to poor credit risks, lose money, and then can’t pay their own depositors.

Perhaps it’s only natural that cryptocurrency exchanges are beginning to offer services that mimic those offered by banks, but these services are still very much in their infancy. And like any other company without a long track record, the advice to investors is very much caveat emptor.

The danger in cryptocurrency investing is that too many investors get stars in their eyes. They saw the massive gains in 2017 as Bitcoin went from $1,000 to over $20,000 and they keep hoping to see similar growth in the future. They’re looking for overnight riches, when the real road to wealth is slow and steady growth.

Yes, Bitcoin’s growth hasn’t exactly been slow and steady, but for the most part it hasn’t been stratospheric either. It’s been a great performing asset that has provided numerous investors with great gains, but its best years are still ahead of it. Rather than looking to lock in “guaranteed” gains through cryptocurrency lending schemes, investors ought to stick to tried and true investment vehicles such as Bitcoin IRAs to purchase and hold their Bitcoin investment assets. With a long track record, secure storage, and many satisfied customers, sticking to proven investment vehicles is the way to go.