Crypto lending has recently fallen under the watchful eye of the Securities and Exchange Commission as well as state regulators because the field is growing so fast. This is despite regulatory pressure that is meant to control the growth of this kind of lending. Crypto lending offers the benefits of quick turnaround times to bind loans as well as excellent rates and terms. These loans also allow asset holders to finally use their crypto for something in the real world.
Borrowing in cryptos is clearly going to continue to become more normal, but there is yet to be a good regulatory method to make these loans truly stable and viable. Crypto can yield big results for investors and or lenders, but there are risks associated with using crypto in this way.
The Risks of Crypto in Lending
The first major issue with crypto lending is that crypto is not a stable commodity. This is not something with a reliable valuation model backing it like a car, a boat, or a house. The Crypto market can vary wildly and this can impact the actual value of the asset that is being used to back a loan. This is all well and good until the loan goes into default and the lender cannot recoup their losses.
Digital assets are also increasingly associated with a lack of regulation based on the ways in which they are being managed and used. This is an industry that has not been mainstream up until recently and there is simply a lack of surrounding regulatory oversight to help define how crypto should be sold, bought, and used.
Digital asset lending is a profitable business model for many up-and-coming businesses at this time as companies like BlockFi and Celsius are offering loans worth billions each year for those who hold crypto. These are interest-bearing loans complete with loan terms, companion credit cards, and more. This seems like it is all sunshine and rainbows, but these loans can only exist while the market is high enough to make them viable.
While there are risks that must be considered, there is no doubt that lenders and borrowers alike are currently benefiting greatly from this new form of lending. Crypto lenders might have to be careful about the way that they choose to lend money and they might occasionally love money on a loan, but the market for crypto is so healthy at the moment that none of this really matters. The rubber might really meet the road if the market slacks off, but for the time being, this seems to be a new and very beneficial way for people to loan and borrow money.
Crypto Has Always Been a Risky Investment
The fact remains that crypto has always been a high-risk investment. For those who have been smart enough to sell and buy at the right time, it has made fortunes. For those who have been less savvy, it has been a great negative in their financial reality. Crypto lending appears to be on the rise despite these risks, with or without regulatory processes to support the validity of these loans.
Crypto lenders are urged to be cautious when entering this space, but there might be high yield benefits that are well worth the risks.
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