Case studies

OTC traders unlocking value with a crypto-backed loan

Until the launch of crypto-backed loans, when an Over The Counter (OTC) crypto-trader needed to buy more BTC for a client, it meant losing commission on every trade, to cover the cost of buying TBC through exchanges for clients quickly. Now that’s no longer necessary. An OTC investor doesn’t need to sell inventory to keep trading. You can borrow against the total value of the assets you own, making it easier to benefit from price fluctuations and profiting when the market moves in your favor.

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

Outline

OTC 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 unlock the value of their assets without selling BTC inventory, or inventory of any other currency. But at the same time, when new opportunities come along, you need the liquid funds to benefit from these. This is a serious problem with OTC traders buying BTC when prices are rising quickly, as clients want to cash in.

OTC traders are therefore losing commission when they need to buy BTC from exchanges to fulfill trades for clients.

Instead, with CEX.IO, we can give investors and traders a more effective way to capitalise on new investment opportunities, or release funds when they’re needed to cover costs. Take out a crypto-backed loan. Secure it against the value of crypto-assets you currently loan. Don’t miss out on opportunities. No need to sell what you own. Take a loan instead.

Rely on CEX.IO, as a way of leveraging crypto-assets to borrow money. If you need cash now: take out a crypto-loan. 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, for OTC Traders. All figures are hypothetical and the price of BTC doesn’t reflect reality. It’s purely for example purposes.

Our hypothetical OTC Trader has $200,000 worth of crypto-assets in a broad investment portfolio. They need $40,000 of that to make more trades for customers, and pay $20,000 worth of personal costs, and this money is needed in 5 days time.

Unfortunately, as any OTC trader and crypto-investor knows, the market can drop as quickly as it goes up. In March 2020, in response to Covid-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 8 BTC to ensure they’ve got $40,000 they need right now.
  • Option 2: Instead of selling, this savvy investor leverages the value of the BTC they own to take out a crypto-backed loan worth $40,000. That should cover everything they need, including the ability to complete more trades for customers, while retaining the original value of their portfolio at $200,000.

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 $32,000, which is 80% of the value of the loan, minus 2.5% in platform fees. So instead of selling $40,000 in crypto-assets, this savvy investor was able to cover costs and make a new investment, and at the same time, generate an extra $31,200 in crypto-assets.

What’s the best way forward for you, as an OTC Trader?

As an OTC trader, the smartest way to unlock value, cover costs, and pay for trades without needing to sell BTC inventory is through crypto-backed loans. This way, the BTC inventory can be leveraged without traders needing to sell anything, helping them get more with the BTC already available.

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, as an OTC crypto-investor. Timing is everything. Moving fast is key to benefiting from price fluctuations.

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 OTC 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 OTC 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.