Bitcoin lending has been compared to general investing, yet different principles apply to both areas. If you’re considering the idea of lending your coins for profit, then there are several things to keep in mind before joining this market.
1. Diversify your lending portfolio
At this time, many Bitcoin lenders choose to only handle one or two big loans at a time, as it makes everything a bit easier and less time-consuming. However, this strategy can backfire. It’s best to avoid putting all of your eggs in one basket. Rather, consider providing multiple small-scale loans at once. In case things go south with one person to whom you lent your coins, your loss won’t hurt your pocket too much.
2. Research loan recipients’ intentions
Most lending platforms will require those seeking Bitcoin loans to write in-depth descriptions on what they plan to do with the money. Make sure to read these descriptions carefully, and if anything sounds unclear, consider getting in touch. In the world of lending, it’s best to follow your gut. Therefore, if it tells you that something is wrong, simply don’t lend that person money.
3. Consider loan duration
Loans can last anywhere from a few days to a few years. While longer loans can provide long-term benefits, short-term loans provide users the opportunity to re-invest alongside liquidity. Having a stable ratio between short-term and long-term loans may be a good strategy.
4. Consider geography
Economic experts often recommend lending lower amounts of money to emerging markets, and higher amounts to markets based in the developed world. Loan amounts, therefore, tend to vary in size from country to country. Do your research and judge how much is best to loan every time.
5. Learn from past investments
There are good loans and bad loans, yet determining one from the other is only possible once the loan has been given, used and then (hopefully) paid back. Therefore, it is recommended that you analyze your past lending investments, look for patterns, and identify your mistakes and the things you did right. This will lead to better strategies in the future, and hence a higher profitability in the lending market.
Have you ever lent someone Bitcoin? Are you considering joining the lending market? Let us know your thoughts in the comment section below.