Searching for Steady Gains via Crypto Margin Lending [Analysis]

Margin trading magnifies the market’s every move. Leverage intensifies the trading experience and captivates our inner risk-taker. It’s either moon or gloom. We are lured in, naturally focusing on the upside potential. As volumes grow along with increasing crypto-optimism, demand for leveraged exposure is rising. 

The surge in traders’ demand for additional capital is met by margin lending. Peer-to-peer markets enable lenders to earn interest on their capital by offering short-term loans.  While this side of the market may be less alluring, it offers significant returns. This article explores the opportunity for crypto investors to earn steady gains through margin lending.

An Inconvenient Truth about Trading

Anecdotal evidence suggests that over 90% of traders end up losing money. This implies that entry-level “trading education” is misleading. The false promise of profits leads traders in before they fully understand the market. They pay their own school fees, in the form of trading losses, until they learn to beat the market.

Profitable traders develop strategies that are back-tested and optimized for success. While this alone does not guarantee success, a trading system means being able to select setups which are expected to have a positive outcome. In contrast, without data to support their trades, most new traders act on the whims of their emotions. They play a risky game blind.

Fortunately for investors, the growing cryptocurrency sector offers niches for wealth creation with lower risk. 

Lending Completes the Margin Ecosystem

Margin facilities are valuable to traders. Using their funds as collateral, they can increase exposure. Liquidity is improved, with only a portion of their funds required on the exchange. Given these benefits and the high-stakes nature of margin trading, traders are willing to pay relatively high interest for short-term capital loans. 

In traditional markets, institutional brokerages are the loan providers. Given their absence from the crypto equivalent, this presents an opportunity. Through peer-to-peer lending, private lenders can gain access to the low-risk returns typically only enjoyed by the richest 1%. 

But how low is that risk anyways? A key factor makes crypto margin lending different from the traditional version. When a trader’s losses exceed their collateral, they receive a dreaded margin call: either they deposit extra collateral, or else the position is closed. In crypto, however, the margin call is no call at all. A trader’s position is automatically closed if losses consume their collateral. This relies on a matching engine which liquidates positions to protect lenders. The result is an interest-earning margin lending market with minimal risk of losses. 

A Lower Risk Addition to Crypto Portfolios

While being one of the lesser known crypto markets, high-yield lending opportunities are, of course, well contested.  High-interest offers are snapped up, with only spoof orders left behind to trick competitors. This is an increasingly difficult market for small or inexperienced traders to come out on top, but the emergence of margin lending funds offers investors a passive solution to earn double-digit returns. 

As a result, the high-yield frontier remains with peer-to-peer margin lending, a market which benefits from volatility regardless of direction. As price volatility increases the demand for margin loans, lending rates surge, with some traders paying an annualized rate of over 20% for short-term loans.

Margin trading continues to dominate the conversation around high-yield crypto returns, but investors can benefit from exploring the wider range of options that the maturing cryptocurrency sector offers. Here they will find the reliable returns with lower risk that are sorely missed from crypto portfolios. 

About the Author: Jason Peckham grew up on a farm in Kwa-Zulu Natal, South Africa. He is a qualified civil engineer who gravitated to FinTech and is currently the Business Development Analyst at Invictus Capital. Aside from his interest in blockchain-enabled investment opportunities, he enjoys spending his time hiking, in the ocean and adventuring outdoors. Say hello on Twitter or send an email to [email protected]