Case studies

Investors & traders unlocking value with a crypto‑backed loan

For investors and traders in cryptocurrency, locked-in liquidity can be a serious problem. Without extra liquid capital it’s impossible to make new investments, and therefore benefit from price changes and opportunities, or pay for other costs with fiat currency. CEX.IO solves both problems, with a crypto-backed loan tied to the assets an investor or trader owns.

Investors & traders unlocking value with a crypto-backed loan at CEX.IO

Outline

Investors and traders often have a wide spread of cryptocurrency investments. Whether this is through regular trading, or investing in high-growth startups through Initial Coin Offerings (ICOs), large sums are usually tied up in one investment or another. Unfortunately, this can cause problems if investors want to retain the assets and investments they’ve got and make new investments. Not everyone wants to sell or devalue current holdings in order to make room for new opportunities.

At the same time, an investor is likely to have professional and personal costs to cover. In most cases, these costs need to be paid in fiat currency. Converting cryptocurrency to fiat is often expensive, depending on the price at the time and how much a currency has fluctuated within a space of a month or few weeks.

With CEX.IO, we can give investors and traders a more effective way to capitalise on new investment opportunities, or release funds when they need to cover costs. Benefit from a crypto-backed loan, secured against the value of the crypto-assets you currently own.

When investors and lenders reasonably expect crypto-assets to grow in price, you can rely on CEX.IO, as a way of leveraging crypto-assets to borrow money. If you need cash now: take out a crypto-loan.

Don’t reduce the crypto-assets you can access; borrow against them, and pay off the loan when the value of those assets increases. Unlock the potential of what you have, to build a better tomorrow and more affordable today.

Financial options

Let’s take a look at how crypto-lending works in practice. All figures are hypothetical and the price of BTC doesn’t reflect reality. It’s purely for example purposes.

Our hypothetical investor or trader has $200,000 worth of crypto-assets in a broad investment portfolio. They need $20,000 of that to make another investment and pay $10,000 worth of personal costs, and this money is needed in 10 days time.

In March 2020, in response to Cover-19, the price of Bitcoin suddenly dropped 50%, from approximately $10k to $5k.

What can this investor do to cover these costs?

  • Option 1 Sell 4 BTC to ensure they’ve got $20,000 they need.
  • Option 2 Instead of selling, this savvy investor leverages the value of the BTC they own to take out a crypto-backed loan worth $20,000 to cover everything they need, while retaining the original value of their portfolio at $100,000.

Assuming this investor was savvy, they would benefit when the price of BTC surged back to $9000. Going the crypto-lending route (Option 2), would generate an additional profit of $16,000, which is 80% of the value of the loan, minus 2.5% in platform fees. So instead of selling $20,000 in crypto-assets, this savvy investor was able to cover costs and make a new investment, and at the same time, generate an extra $15,600 in crypto-assets.

Traditional or crypto-lending: what’s best for you, as an investor or trader?

With traditional lenders, such as banks, earning money through crypto-investments isn’t always seen as a safe income stream. Banks may disregard the assets an investor has, making it harder for them to lend money. Even if this is possible, it can take weeks or months to get a traditional loan.

Whereas, with CEX.IO, our loans are based on the strength of your crypto-assets and revenue. Benefits of crypto-loans compared to fiat lending:

  • Get the cash you need in minutes or hours at most, not weeks
  • Quick and transparent evaluation of cryptocurrency collateral and risk factors
  • Benefit from the collateral you have (higher value of the collateral = we can lend more, depending on the LTV ratio)
  • Repay the total value of the loan with collateral, thereby reducing your risk
  • Repay the loan or add more collateral at any time

What happens if there’s a bull market?

Benefit from an asset performing well. If you time it well, you can lend when prices are low, watch your LTV rise, and then generate even more as prices rise, allowing you to profit and pay back a loan. Or you can borrow more, depending on your investment strategies at the time. With a crypto-loan, you are always going to benefit more in the event of a bull market.

What about a bear market?

As any seasoned crypto-investor knows, you need to stay calm, and remember that what goes down always comes back up. Leverage the assets you have, make smart investments when prices are low, or pay for what you need with a loan, and benefit when prices go back up again.

Key Takeaways: Crypto-lending for Investors & Traders

  • We can lend fiat currency based on your cryptocurrency assets as collateral
  • We are fast. Approval in seconds
  • CEX.IO trusts crypto-based assets and verification
  • We don’t rely on outdated credit scores
  • We secure collateral assets with highly encrypted levels of security

Disclaimer. As with any lending product, or investment, there are risks. Investors need to be prepared to lose some or all of the original capital invested. Also, for investors, as per guidelines on any investment, we need to be aware that past performance isn’t indicative of future performance. Lenders need to be aware of their capital risks and liquidity, and that we are dealing with newer and riskier platforms than traditional lending products, platforms and institutions. Lenders and investors also need to note that these markets are unregulated, and therefore more risk is assumed and accepted.