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Everyone Makes These MISTAKES with Crypto Loans

20 Sep, 20226 min readOther
Everyone Makes These MISTAKES with Crypto Loans

Crypto loans have existed since the dawn of smart contracts and decentralized finance. The idea of crypto loans has become popular over the years as the industry continues to grow. Several crypto lending platforms have sprung up and continued to deliver top-notch crypto loan services to clients across the globe. However, there are some common mistakes that many investors make with crypto loans due to the volatile nature of cryptocurrencies and crypto loans.

The crypto market is the most active market for retail and institutional investors. The high volatility can lead to massive price fluctuations that primarily affect the overall investment portfolio value. Due to these sudden shifts in prices, investors often make hurried decisions that turn out to be grave investment mistakes. This article debunks some of the most common mistakes with crypto backed loans.

1. Failing to “buy the dip.”

Often when the crypto market turns red, some crypto investors interpret it as the end of times and keep lamenting about the dip as they think they lose money on their investments. However, a long-term investment strategy takes advantage of significant price dips. Whenever a dip happens, seasoned crypto investors perceive it as an opportunity to buy the dip. Below is a price chart of Bitcoin over the years from 2013 to 2022 showing how dips are part of the growth journey.

Bitcoin Price Action for 2013 to 2022 by CoinMarket Cap

So what does it mean to “buy the dip”?

Crypto investors can take advantage of plummeting prices as an opportunity to buy more crypto tokens. Whenever prices fall, seasoned crypto investors use crypto-backed loans and invest in promising digital assets that would return more interest in the long term. For instance, here is a chart that shows the long-term price prediction of Bitcoin.

2. Selling current portfolio instead of taking a crypto loan.

Making investments is a challenging part for most people. Financial literacy is critical to ensure financial success. Whenever a person needs a loan, there are often better options to obtain without hurting their property or investment portfolio.

Whenever faced with financial constraints, people often rush to sell expensive and most valuable assets, such as houses. Others spend life savings or deplete salaries to get ahead with investments.

This mistake is common for the investors – to ignore huge investment possibilities that open the crypto loans and continue to turn around owned funds. Crypto loans platforms offer a safer option that allows to take cryptocurrency loans by borrowing against crypto collaterals. The best crypto platforms allow users to take quick and accessible loans for an indefinite term and repay them whenever ready. Such crypto loans provide a significant hedge against investment risks and protect crypto investors from unnecessary market risks.

3. Improper market search before taking a crypto loan.

Crypto loans from different platforms often come with various terms and conditions. Taking out crypto collateralized loans without proper background checks is as risky as investing in a crypto project without doing research.

Many crypto users fall into the trap of going for enticing returns that are often above the market rates without investigating how these businesses generate extra profits. Here are some factors to consider;

  • The Business Model
  • Best crypto loan platforms generate profits from the loan interests earned. However, some platforms use the locked collateral to trade on third-party platforms that gain more interest. These additional investments expose crypto loan users to risks that can often lead to collateral loss. A reliable crypto lending platform should depend only on interest rates and lock the loan collaterals in safe cold wallets to protect their clients from unnecessary risks.

  • Big Partners
  • Crypto loan platforms sometimes form partnerships with other industry players to ensure smooth processes. The platforms with big industry players as partners are often more credible.

  • API
  • Crypto loan platforms have to process loans and collateral deposits swiftly and efficiently. If a platform has robust APIs that are too big, it may take extremely long to receive your loan amounts.

    4. Ignoring short-term trading opportunities

    The high volatility in the crypto market is essentially a double-edged sword. Day traders and sculptors often take advantage of the daily price changes to make more profitable trades. These short-term strategies are sometimes more profitable than long-term strategies that involve holding tokens even when the market is red.

    Experienced day traders can use quick cryptocurrency loans to trade, make profits during the day, and repay the loans at the end of the day to retain profits. Such strategies often benefit the smart hands that can take advantage of good trading opportunities on daily market trends.

    5. Ignoring when the crypto loan’s margin call is red.

    Crypto collateralized loans are issued by depositing your preferred crypto as collateral before receiving loan amounts on stablecoins of your choice. It is essential to watch the Loan-to-Value ratio when taking crypto financing, as it determines your liquidation price.

    Since the crypto market is a 24-hour market, prices change every time, making it possible to be liquidated quickly. Some of the great crypto lending platforms have effective notification systems that monitor collateral levels and notify users of their loan status to top up their crypto collateral whenever the liquidation price is close.

    Crypto loans in 3 steps

    The CoinRabbit crypto lending platform boasts an excellent track record of demonstrating credibility and trust by handling clients’ crypto collaterals. The platform has gained significant trust in the industry due to its partnerships with big companies such as ChangeNow, Atomic Wallet, and Guarda Wallet, significantly improving the overall experiences of crypto loan users on the platform.

    Here is a guide on how to get a quick loan from CoinRabbit’s crypto lending platform.

  • Calculate. – On the Loan Calculator, Enter the amount of collateral to calculate the loan amount to be disbursed.
  • Get in 15 minutes – Deposit your collateral and wait approximately 15 mins for your loan to be disbursed.
  • Spend – Receive your Loan amounts and spend them wisely.
  • Conclusion

    Borrowing against crypto is a fantastic way of preserving your portfolio while creating more investment opportunities. Crypto backed loans can open more investment doors and build your crypto portfolio by avoiding the mistakes discussed above.

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