Things That Lenders Need to Know About Crypto Lending

3 years ago

Cryptocurrency has found its footing during the pandemic and is increasingly relevant for investment purposes as well as for lending. Crypto currency has increased its market cap to reach $2.5 trillion since the start of the pandemic. This foretells a growth rate within the market of about 60% through 2026! Crypto is increasingly considered to be a viable financial asset with a long-term future and investors are increasingly interested in getting a hold of this asset.

The crypto market is bullish at this time, but crypto asset holders still have limited access to spending power using it. This is because there are too few ways to use crypto for real-world goods at this time and also because crypto asset holders are motivated to hold onto their assets in the hope that the value will increase over time. This strategy combined with the lack of real-world application in today’s market continues to hinder the performance of crypto for spending.

Crypto Lending- What You Need to Know

Crypto lending offers asset holders the chance to use their crypto in a real-world application that provides value in exchange for the asset. This is becoming an increasingly viable way to get a loan that is easy to bind and delivers cash based on the value of the crypto that is associated with the loan. Lenders who use crypto for this kind of loan process will hold the crypto that has been used as the collateral for the loan for the set loan period. These loans are paid back at the end of the loan term in a lump sum typically, and the crypto is released back to the borrower.

This is a way for people with challenged credit or a bad debt to income ratio to get a loan when they need it. Best of all, these loans are usually quite competitive in the lending market. Borrowers who do not pay back their loan agree to allow the lender to liquidate the asset to make back their money.

Lenders need to be aware that there are limitations in this loan type related to regulatory compliance, to the value of the crypto fluctuating over time due to market volatility, and to the use of the crypto asset after it has been surrendered. This asset might not always be as viable in a real-world sense as a security of another type either.

Crypto lending is still new enough that tax issues can crop up when these assets are used for this kind of loan and there are potential issues related to enforcing the payments if the loan is intended to be paid back in installments. Despite the limitations of this kind of loan, there are increasing numbers of lenders willing to take a chance on using this asset for collateral.

Crypto Lending Shows Promise

While this kind of lending is still new, Crypto lending shows promise. It can offer real value to crypto assets that cannot be spent in many other arenas and it can offer lenders the chance to diversify the ways that they offer loans to customers.

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