The father of
cryptocurrencies – Bitcoin has indisputably become a frequent point
of discussion among traders, investors, entrepreneurs and startups.
Amongst all the cryptocurrencies, Bitcoin has the highest market cap
value of $112. After Bitcoin faced so many headwinds, it is now the
‘Internet of Money’ and continuously directing itself towards the
succession and the next wave of Blockchain revolution.
 |
| Bitcoin backed loans |
As of now, retailers are witnessed accepting Bitcoin as a ‘Point-of-Purchase’, so crypto hodlers and investors have turned their attention towards lending using Bitcoin as collateral. Bitcoin being a growth driver is gradually stepping into the lending industry, replacing the time-consuming processes and high interest rates of the traditional banking system.
How do Bitcoin
Backed Loans Work?
Borrower comes to
the P2P lending platform, pledges Bitcoin with the lender and gets
the cryptocurrency in the form of USDC or whichever the case may be
as a loan. The interest is determined by the platform itself and the
borrower apply for the loan that matches the terms of the lender.
Some platforms even allow lenders to state as against how much
Bitcoin they are willing to lend and at which interest rate.
Borrowers can then apply for the loan and lenders can choose whether
to grant the loan or not.
Why A
Bitcoin-Backed Loan Is A Next Frontier?
There are two
reasons why Bitcoin-backed loans are about to become the next
gigantic thing with investors in the digital currency and if you have
no intention of investing in Bitcoin, you need to pay attention as
the financial infrastructure to support crypto-lending gets built.
Let’s have a look at the two major reasons why Bitcoin backed loans
has become a big thing of the future:
-
Bitcoin Lending Does Not Require A Bank Account
In the developed
country, loans and credit are the lifeblood of the economy. An
initiative like Project Loon has set its own standard, which exhibits
global internet penetration is rising at a much higher rate than bank
account penetration. In Africa, internet penetration has risen by
7,000% in the last 15 years while Asia experienced growth rates of
1,467% in the same period. Bitcoin has another benefit of requiring
only an Internet connection to work. Thus, Bitcoin offers an
excellent chance to make the modern economic system more inclusive.
-
Bitcoin Owners Need a Tax-Friendly Exit Strategy
A loan is not a
taxable event and if you use Bitcoin as collateral for a dollar-based
loan, you can spend the money without paying any taxes on the gain in
value in your Bitcoin holdings. You can pay back the dollar-based
loan but you can sell Bitcoin later on when the loan comes due and
defer any taxes until that later sale. Otherwise, you can extend the
loan if your lender agrees as long as the value of the Bitcoin
collateral remains completely enough to secure the loan. A wish to
avoid paying high taxes will drive huge demand for Bitcoin backed loans.
To Sum Up
Of late,
peer-to-peer lending has established itself as a credible competitor
to traditional loan and investment opportunities. It gives an access
to an asset class with an exciting risk and return profile; net
returns are ranging between 4%-8% per year which is far more superior
to other interest-bearing investments. Therefore, now when the peer
to peer lending industry has become mainstream, it has turned out to
be an ‘engine of growth’ for the blockchain technology.
No comments:
Post a Comment