Now more than ever, startups in the crypto-space (whether you’ve raised funds through an ICO, or are working on crypto or Blockchain-based technology) need to raise capital, for survival and growth.
Startups can leverage and use cryptocurrencies in different ways. Either you generate it through operations, or a startup raised ICO funds that way, or those funds are being used to develop blockchain-based technology.
However, regardless of the amount of cryptocurrency generated, startups always need to pay staff and usually suppliers with 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 startups a better way to raise fiat funds when they’re needed based on the amount of cryptocurrency you have available. When startups 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.
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 startup raised funds in Bitcoin (BTC). In March 2020, the US$ value of salaries due was $100,000. Naturally, these salaries need paying, regardless of the value of BTC. Unfortunately, the price of Bitcoin suddenly dropped 50%, from approximately $10k to $5k.
What could the management team do to ensure salaries are still paid on-time and in-full?
Assuming the startup management team went with Option 2, the value of BTC increased to $9000. Compared to Option 1, the cryptocurrency lending route (Option 2) would generate an additional profit of 20 BTC. That increase in prices would generate an extra $80,000, which is 80% of the total value of the loan, minus 2.5% platform fees, thereby ensuring a 77.5% profit, compared to selling cryptocurrency.
When it comes to traditional lending, banks and lenders need to know how much revenue and how profitable your business is. It can take weeks or months to get money. And it’s far from guaranteed. Especially when you’ve raised money through an ICO, or generate revenue from crypto-currencies. Almost every bank or lender would see this as far too high risk, and therefore wouldn’t lend money on that basis.
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:
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 growth strategies you have. With a crypto-loan, you are always going to benefit more in the event of a bull market.
Stay calm, and remember that what goes down always comes back up. That’s always the case with cryptocurrency. Leverage the assets you have, pay for what you need with a loan, and benefit when prices go back up again.
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.