Crypto is a form of currency that has been growing in its popularity for the past few years. As such, many are looking towards it as an option when it comes to investing. But why is it important to earn a yield on your crypto when investing and what are the options? Are there any risks and if so how can you avoid them?
If you’ve been thinking about investing in crypto or you’ve already done so, then here are some tips on how to earn yield when it comes to this currency.
What are the options?
There are a few options to consider when it comes to earning yield on your crypto. These methods will be explained in order for you to consider the best one for your needs. When it comes to crypto, it’s an investment that can be particularly volatile. Even though for the most part, investors will make money off the fluctuation of crypto, this isn’t always a steady way of earning profit.
However, there are options available to look at in order to keep your investment steady.
Crypto Loans & Lending
A common type of lending that can help improve yield is crypto loans and lending. This can be done by lending or loaning out the crypto on a finance lending platform that deals or specializes in cryptocurrency.
It’s a similar concept to traditional banking in that you become the lender or loan provided to those who are looking to earn a better yield on their investment. Although this can offer a steadier yield, there are risks in regards to the borrower and making sure they pay it back.
There are some suggested options on P2P Empire when it comes to where you can find suitable lending platforms.
Crypto Margin Lending
This can be a suitable option when it comes to improving yield for cryptocurrency. With crypto margin lending, there are leveraged traders who are looking to use your currency in order to help trade with more money than they have.
As there’s more of a capital required to offer margin lending services, the loans provided by the investors can be offered to individuals within the exchange itself, rather than the chosen exchange offering it instead.
To understand it better, if you have $1,000 available and want to trade with x5 leverage then they use the $1,000 as collateral for a $4,000 loan and there’s an interest rate attached to this. Over the year, these loans can accrue anywhere from 7% to 15% per year.
With crypto staking, they’re earning a yield by staking certain cryptocurrencies to generate a return. Staking is referred to as the act of locking up a cryptocurrency in order to get the reward. This is usually paid in the form of additional cryptocurrency. It’s usually held in a wallet to support the security and operations of a blockchain network.
What’s the risk?
There are some risks that come with all of the above opportunities but it’s something that is part and parcel when you’re investing in any kind of asset. Some of the risks that come with these yield options are as follows.
For crypto lending and loans, it involves over-collateralizing the loans to ensure that they’re looked after. Because of that, it might not make it a great deal for those looking to borrow because the value of the collateral may drop. It means the borrower might have to add more collateral to the loan.
With crypto margin lending, the lenders will borrow capital to trade with which magnifies the losses and their gains. To lower the risks, mitigation strategies are put in place by the exchanges. The exchanges implement minimum percentage equity that must be maintained with the margin, otherwise, it becomes liquidated.
It means that the trader should never lose more than the collateral they’ve put down and for the lender to not lose any of their investment as a result.
With crypto staking, it’s worth looking at it when it comes to stocks and dividends. As the staking itself is not lending to anyone, the risk of any default on the loan is not there, to begin with. The main risk is that the investment comes from the price volatility of the asset itself being staked. There’s also the technological risk of holding and staking this cryptocurrency.
What to pay attention to?
In order to find the best option for your needs as an investor, it’s good to weigh up the options you have and what differences they have when it comes to their advantages and disadvantages.
The lending market for cryptocurrency certainly offers a lot in the way of opportunity but it’s all about knowing the risks and knowing where to start when it comes to lending. As there are many platforms available for lending, it’s worth taking a look at these as a starting point.
Be sure to look out for the more volatile cryptocurrency as just like the stock market, your investment might be worth a lot one day and then fall the next. There will always be a risk in investments, it’s just knowing how much you’re willing to risk.
Consider experimenting with all three of the options because you might find that one is actually more productive than the other.
Take advantage of earning yield on your crypto
Even though many would choose not to lend their crypto and simply let the investment pot grow, earning yield on your crypto can be done in a steady manner. Any of the above suggestions is likely to provide a reasonable profit on your currency and will perhaps give you more scope to invest even more.
Remember the risks that come with each one and be sure to do plenty of research as you would with any other investment opportunity.