Investing directly into bitcoin or other cryptocurrencies is risky, as we discussed previously. However, there’s another way how you can “ride the wave of enthusiasm” around cryptocurrencies and earn good profit – without risking your base capital (what you put into it). Sounds too good to be true? It is not, I’ve been doing it for over a year now. The idea is that you don’t invest or trade – you lend your money to others, so they can invest. What is one of the oldest and most profitable financial models today and has been for years? Lending. Banks give you money and take a fee for it (interest). They are not risking losing the money as it’s usually secured / backed by something – your house, your possessions (execution). It’s a fairly safe bet for them.
It’s based on consumerism, greed and people’s need to have more. At the right setup (interest rates), it’s a fine tuned money machine.
Now you can use this system too. You can lend money to other traders who pay you hourly interest for using your money to trade. The system is built so that if their trades don’t work out, their positions will be closed so that whatever loss there is can be recovered from their balance. The traders can only borrow from you if they have a certain amount in their account + they can only borrow a certain multiple of what they have in the account. So even if things go wrong – the losses will be covered from their funds and you will get your money back.
This way you can profit from bitcoin or other cryptocurrency movements, but without risking your money. You just get paid for allowing other to risk their money.
Here’s how you get started:
- Head over to Bitfinex.com and open an account.
- Enter dZ5hKnqVOs as the referrer code to get 10% discount on your trading fees for the first 30 days
- In order to fund it, you need to first buy supported cryptocurrencies (BTC, ETH, LTC, XRP and many more) and deposit them into one of your wallets (top right corner > wallets) – USD deposits have been on hold for a while – guess they can’t find a good partner / bank to handle it for them.
- Transfer the funds / cryptocurrency to one of your Bitfinex wallets (for lending, it’s the Funding wallet)
- Decide whether you want to lend in USD, BTC or any other available coin
- Set up an offer – you can manually choose the interest rate and duration (for how long to lend), but it’s hard to follow the development – interest rates change daily if not hourly. If you pick a too high one, no one will take your offer. It’s much easier to leave the system to do the work for you:
- use the FRR rate (flash return rate – average interest rate calculated automatically for you) or FRR Delta (set a small % you would like to undercut the FRR or be over it) – if you want to be more or less competitive.
- set number of days – not sure what number is better – whether lower number (you lend for say 3 days, then lend to someone new one) is better, because you always recalculate the interest rate, or whether lending for 30 days (max) is better, because you fix the rate for this time. I haven’t calculated the difference, but for now I work with 5 days.
- Press the red button Offer
- then activate autorenew in the right section – meaning that as soon as the lending finishes and you get your money + interest back, it will be lent again, including the interest. The magic of compound interest is working here for you too.
Here’s how it should look like (for whichever cryptocurrency):
Where to check progress & profit?
In the top right corner, click on your profile icon > reports > select a coin and a period and see how much you’re getting in interest daily.
Which currency to lend?
I find that USD is the most liquid – as there’s most demand – people use it to buy all kind of cryptos. Your offer (if it’s FRR) will always be taken.
The interest rate is also the best on USD. For example, in a month of lending ETH, the interest I got was only 0.54%.
With others – it can be slower, as there’s very probably not as many traders using say XRP compared to USD.
But why not try? Your coins can just sit in your wallet, or they can earn interest – so I have all mine in the exchange wallet and the offers are open. If they are taken – great, I earn more. If not – no problem.
How much can you earn?
I started over a year ago with about 100 USD, after a few months of successful testing, I added more and recently I doubled that. On average, I am getting 29% return on the amount I’m lending. This is somewhere in line with other reports I’ve seen on other blogs.
You could be getting anyting from a few cents to $1 or much more per day – that’s $365 per year on about a $1000 investment.
As with any investment opportunity, there’s some risk. In this case There’s two main risks:
- a very small chance, that the markets will fall too much and the system won’t close the trader’s position in time to cover all losses from their funds. Bitfinex ensures they will cover some of the losses in such case, although in years of operating, it hasn’t happened.
- Bitfinex explained the risk associated with money lending and your money protection more in detail here. Overall, it’s a much smaller risk than active trading.
- your money isn’t stored in cold storage (a paper wallet, a hardware wallet) safely with you, but it’s stored in an exchange that can be hacked. In fact, Bitfinex was hacked before. I was affected too, but they handled it well and I hold no grudge with them.
- Bitfinex isn’t an EU or US company, therefore they aren’t regulated as you would think. They can change their offer and services (like minimum withdrawal amount) without any prior notice. For all we know, they could just disappear from one day to another – keep that in mind if investing a bigger amount.
There’s some risk involved in any kind of investing. With cryptocurrencies, the risk is higher as it’s all new technology and in focus of hackers – as new companies grow like mushrooms after rain, sometimes not completely prepared on cyber security front. Better stick to companies, who have been around for longer and in case of Bitfinex – have some real life (real hack) experience, therefore I presume – improved security and controls. They are one of the largest exchanges out there too.