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Is Bitcoin lending safe? 9 things to consider before lending BTC

Relite Education
Aug 13, 2021
4 min read

In crypto trading, some encourage participants to hodl their Bitcoin until the price is right, which is a good strategy. But traders can still earn from their Bitcoin while they wait for the right price. Bitcoin lending is one such activity. Though with some risks, this type of trading can help traders gain passive income. In this article, we go through factors traders must consider for optimal gains while lending BTC.

What is Bitcoin Lending?

We can define Bitcoin lending in two ways:

As a lender

Bitcoin lending is actually providing Bitcoin as liquidity in a crypto lending platform. Here, an investor will lend out their Bitcoin to a platform in return for crypto rewards - yield or reward tokens. Crypto lending platforms offer variable annual percentage yields (APYs) if you are willing to lend out your idle Bitcoin.

As a borrower

With the price volatility around Bitcoin, getting liquidity from the asset may prove challenging. Fortunately, through crypto lending platforms, you can get quick liquidity with crypto-backed loans. Thus, Bitcoin lending is a form of crypto lending where a trader uses Bitcoin as collateral to get a crypto loan in the form of stablecoins (USDT, USDC, etc.) or any other cryptocurrency. In most lending platforms, you will have to deposit your crypto collateral and receive the equivalent of cash but in stablecoins.


Can I take Bitcoin Loans?

Yes. From our definition of Bitcoin lending, you can receive funds or stablecoins by providing Bitcoin as the collateral for your loan out of a crypto lending platform.

Can I Lend my Bitcoin?

Yes. As a crypto investor, you can earn returns by lending your Bitcoin. It is a simple way of earning returns without selling you cryptocurrency. The lending process is also less complicated compared to traditional banks.


Is Bitcoin Lending Profitable?

Crypto lending platforms reward liquidity providers from interest earned during the lending period. These platforms offer a variable APY rate based on factors defined in the contractual agreement. With the right lending strategy, a crypto investor can earn reasonable returns by lending his or her Bitcoins.

To gain maximum profitability, you must consider the following factors:

  • Interest rates on liquidity (APY)
  • Collateral for borrowers
  • All forms of fees during the lending period
  • Is the crypto lending platform decentralized vs centralized

These factors inform your decision on a crypto lending platform. When selecting a lending platform or provider, find the right balance to earn you maximum profitability. It is easy to base your lending on attractive APY packages; however, factors like location determine taxation, which can eat into your profits.

To avoid disappointments, also consider the collateral borrowers provide. For instance, consider the viability of a platform providing Bitcoin loans at an annual percentage rate (APR) of 2% while offering an APY of 32% to liquidity providers. The platform provides no balance, which could translate to losses for any party.

Time and strategy are also pivotal factors in making Bitcoin lending profitable. As we’ve seen over the years, Bitcoin is a volatile currency; nevertheless, it’s among the most profitable digital assets. Investors who held onto their Bitcoin past the bear market in 2019/2020 made incredible gains as the currency rallied in 2021. Conversely, some who bought Bitcoin at its peak in 2017 realized losses when selling in 2018.

Other traders are becoming innovative when lending Bitcoin. One of the strategies traders use is bitcoin margin lending. Here, investors borrow from one platform and lend to the other. They make their profits from the difference in APY and APR.

Therefore, consider your lending period and strategy for optimal profits.

What are the best Bitcoin lending sites?

As you consider Bitcoin lending as a way of earning through passive crypto income, here are some of the best Bitcoin lending sites to get you started:

  1. BlockFi – With a few simple steps, you can open your account on BlockFi and start earning interest on Bitcoin. The platform currently provides an APY of up to 8.6%. Through the deposited asset option, you can earn monthly payments from the lending interest. Additionally, you can increase your earnings through compound interest paid out in crypto. The platform also gives you the liberty to withdraw your assets at any time.
  2. YouHodler – The platform is a safe option for traders who want the minimum risk. It provides 4.8% APY. YouHodler also has great customer support and no hidden costs. The only downside is its unavailability in the US.
  3. LendaBit – Another safe option in the market, LendaBet accommodates up to 535 BTC deposits, way above the industry average. With an interest rate of up to 12%, the platform justifies its placement on our list.

Other platforms include Celsius Network, Crypto.com, and CoinLoan.

Can I lose my Bitcoin via Bitcoin Lending?

Yes. Unfortunately, the Bitcoin lending space isn’t without risk. Some platforms are not genuine in their submissions. Their deceptive nature can lead to the loss of your Bitcoin when you invest with them. Additionally, platforms with weak security systems can expose your Bitcoin to risks such as hacking.

As a preventative measure, we advise all investors to perform the following for due diligence:

  • Verify the lending platform’s team credibility
  • Diligently go through all documents about the platform
  • Check for any third-party involvement in the platform
  • Be vigilant on excessive marketing and unrealistic returns
  • Read user reviews of the platform. You can identify paid reviews from genuine ones

By conducting these checks, you reduce your chances of losing your Bitcoin. It is also crucial to monitor the performance of the platform before and during your lending period. These will guide your decision-making.

The loss of Bitcoin is not limited to lenders; borrowers can also lose their crypto. Borrowers who use Bitcoin as their collateral risk losing their cryptocurrency when they default payments. However, some Bitcoin lending platforms provide accommodative repayment plans and some even offer insurance to safeguard the borrower’s collateral.

What are some of the best crypto lending platforms?

Aside from Bitcoin, you can earn decent profits from lending your cryptocurrency. Various lending platforms provide other lending options on top of BTC lending. In a previous article, we offer a comprehensive analysis of the best crypto lending platforms in the market. Here are some of the platforms on our list:

  1. Celsius Network
  2. CoinLoan
  3. Nexo
  4. Binance
  5. Crypto.com

 Check our full list of the best crypto lending platforms.

 What will the future of Bitcoin lending look like?

The Bitcoin lending market is expanding at an exciting pace. With growth comes maturity. Market demands are directing the direction of innovations within the lending space. As it stands, the future of Bitcoin loans demands cross-chain solutions. Platforms like Relite are well aware of emerging market demands and work on the cutting edge of crypto innovation.

We are conscious of the many protocols traders operate in. Our goal is to provide cross-chain solutions to help traders seamlessly move their Bitcoin and other cryptocurrencies.

What are the best crypto passive income platforms?

Several platforms are suitable for crypto passive income purposes. However, like all investments, caution is advised when selecting the platform that works best for individuals. Thorough due diligence is mandatory, and every care should be taken before deciding to invest.

We have an earlier article that discusses some of the best passive crypto income platforms. The article does a great job of explaining the pros and cons of such options and what we feel are the overall superior platforms to recommend.

Frequently Asked Questions (FAQs)

Is bitcoin lending safe? The short answer is yes. As a rule of thumb, before you lend to any platform or provide collateral for any loan, conduct strict due diligence. Learn as much as possible about a platform before committing any assets to avoid unnecessary risks.

Is bitcoin lending profitable? With the right strategy, Bitcoin lending can be profitable. Find the right platform, identify the strategy for you, and you’ll earn decent returns by providing Bitcoin loans.

How does bitcoin lending work? An investor provides Bitcoin to a Bitcoin lending platform in return for a periodic reward. The reward is given based on the APY agreed upon.

Borrowers seeking a Bitcoin loan can get it through a Bitcoin lending platform. The borrower provides collateral in the form of cryptocurrencies to receive liquidity in Bitcoin.

What is the best bitcoin lending platform? There are many Bitcoin platforms best in their small categories; however, the best platform is BlockFi. It gives borrowers and lenders a holistic experience in Bitcoin lending. 

DISCLAIMER: This article does not constitute financial advice in any form. Readers are expected to be fully aware of any risks involved in crypto lending and should only participate after appropriate research.


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Swipe left
Crypto lending Platform
Centralized or Decentralized?
Rating out of 5
Interest Rates
BTC
ETH
USDT
DAI
XRP
XLM
Aave
BlockFi
Cake
Basic
-
0.0%
0.1%
2.7%
-
-
Celsius
Crypto.com
Nexo
Max
-
0.0%
0.1%
2.7%
YouHodler
Binance
CoinLoan
Decentralized
3.2
Basic
0.5%
0.5%
9.3%
8.5%
3.5
-
-
-
Centralized
Max
5.0%
4.5%
9.3%
8.5%
-
-
-
Decentralized
3.0
Basic
5.0%
5%
8.0%
-
-
-
-
-
-
Max
7.5%
7.5%
8.0%
Decentralized
4.0
Basic
Max
Basic
Max
4.4%
5.3%
8.9%
8.9%
2.5%
3.1%
6.2%
6.3%
11.2%
11.2%
3.1%
3%
3.0
Centralized
1.5%
3.5%
6.0%
6.0%
-
0.5%
8.5%
8.5%
14.0%
14.0%
-
5.0%
Centralized
3.7
Basic
Max
Max
Max
Max
4.0%
4.0%
4.0%
4.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
12.0%
12.0%
Centralized
Centralized
Centralized
3.8
3.7
3.5
Up to 12.7% for all 25 supported crypto assets
Up to 7% for all 58 supported crypto assets
Up to 12.3% for all 18 supported crypto assets

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