What is Bitcoin lending?
Bitcoin lending is quite similar to the universal investing. Although, funding bitcoin loans has some features not share properly by other assets classes. In this article, we will read about principles of lending bitcoins and beginners guide to bitcoin.
The first and foremost cited principle of the investing is diversification. Here, mathematical details will show its effect very confidently. But we want to give you information that you can easily understand or digest. And, there is no need to study heavy statistics, you can easily apply as a lender on Bitbond.
Diversification in finance is allocating process of the finance. where the exposure will be reduced to one particle, whether it is a risk or asset. A simple way toward distribution is to decrease the percentage of the risk by investing in the verity of the assets. So, finance diversification means you are placing small bets instead of big ones. As a result of this strategy, you’ll get the decent yield. Whereas, in a case of a big bet, chances of potential return and potential loss are equal.
Bitcoin lending yield is approximately 10 p.a. in bitcoin loan’s portfolio. So, how you will diversify,
Amount per loan:
Accordingly, per loan minimum invest is 0.01 BTC, currently a small amount. This small amount is kept by us on purpose. In addition, with 1 bitcoin you have the option to build 100 loans portfolio. Here, we recommend you, not to invest too much into one loan. Two basic rules are as follows;
- If it is a small amount loan of 0.1 BTC, don’t place more than 0.02 BTC into loan means to put 20% or less than requested loan amount.
- If you are lending 2 bitcoins then do not put more than 0.1 BTC (2 X 5% = 0.1), means loan comprises only 5% or less of your portfolio.
Diversify other aspects of your loan is another good feature. It is very imperturbable that bitcoin lending is listings to the country to country. As the economic environment varies from country to country. A country might be in recession period while other may a part of a dynamic economic activity. Accordingly, time gets changed and creates the impact on the economy as well. Therefore, this makes sense that loan portfolio is directly affected geographically.
Bitcoin lending is quite new in this technology era. So, that all the technology seeker countries are not listed here, listing process is in a process as well. As opportunities are growing on the daily basis, we suggested you a portfolio where a countries’ makeups are at 30% or less of entire portfolio value.
Commonly, Loan with long duration has high default profitability mostly. Its depend on your luck because long durations are always uncertain. It may bring high-interest rate or default loss. Moreover, Bitbond has term bitcoin 6 weeks and 5 years.
If you have short term loans you need more effort to manage your portfolio. Holding different loan investment tending directly toward that your capital is not concentrated to one definite term. Your flexibility lies only in a term when your basis of long-dated loan whereas, other are shorter dating ones. If you are not ready for immediate liquidity than you need to re-invest cash again.
Rating categories have the list of different risks. Higher interest tends toward higher risk. Therefore, an average return will be in the same range. You just have the option of 20% for each rating category (A to E).
Keep the concentration category below 40% in one rating category. This may consist of valued instead of loans.
Two things will happen on loan default.
- The lender will receive the identity details and take the action by his or her own. And, Bitbond will free to sell the claim to this loan to debt collection agency.
- Recovery amount will be higher because debit agencies will collect the amount instead of individuals.
Small amount loans are difficult to collect. But the one thing is most important, a small amount is not small in front of the world. Purchasing power varies from country to country. In addition, loan of 0.8 BTC may be small in Switzerland whereas, may have worth in Chile.
We mention here to invest in loan up to 0.1 BTC or more in established world. Whereas, in emerging markets, this amount is up to 0.5 BTC or more. You are free to check the details of the borrower from a country flag.
Meanwhile, diversification principle is to make small invest loans.
Purpose of The Loan
You need to check the description and notice what the borrower needs the bitcoin for. Each borrower has the option to write 1000 characters. Grammar, spelling might not be perfect always but the main thing is the purpose of borrowing bitcoins. Be thoughtful, if there are just a couple of words and borrower do not mention the main reason or purpose.
Bitcoin lending is new in the technology market and a number of things are still in working. If you follow the bitcoin lending principle properly, asset class will deliver the return of 10% p.a.
But we recommend you to invest bitcoin you can afford to lose. Furthermore, With the passage of time, you’ll come to know, how to invest and you can plan your strategy easily. Because this technology system is unpredictable.
Keep check of your results on daily basis. In addition, collect the pattern performance and apply them in future investments. Meanwhile, on statistics page, you have the option to download the entire history.