When it comes to investing in cryptocurrencies, the most common way to invest is by trading. Cryptocurrencies have revolutionized how we do business, make investments and raise funds. Some would even call blockchain technology the invention that would shape the 21st century. Trading cryptocurrencies is a fast and easy way to profit and can be interesting too.
But there is also another way to earn profits from cryptocurrencies and make your money work for you – crypto lending.
Let’s take a look at both crypto trading and crypto lending.
What is crypto trading?
This is the most common way that people are profiting from cryptocurrencies. The process is easy to understand.
You put money inside a cryptocurrency trading platform, such as Coinbase. Then choose what type of cryptocurrency you wish to buy (Bitcoin, Ethereum, etc.) and make your purchase. Once the price for cryptos has gone up, you sell it back to the exchange and cash out.
It is easy to learn, and investors can do it at a much quicker speed than mining. However, while crypto trading sounds like a natural process on paper, it can be challenging for newcomers to grasp the trading concepts. Trading also requires a strong knowledge of market trends and upcoming market factors that can affect crypto prices. This information can be challenging for new investors to obtain.
Fortunately, some trading bots like Bitcoin Trader lets investors automate trading based on a set of parameters, reducing trading mistakes and making it a hands-free process.
What is crypto lending?
Crypto lending is a relatively newer way to earn profits. It revolves around the concept of shorting.
You don’t have to understand how shorting works, you just need to know that you are lending your funds to other traders who are making short trades. In return for lending your funds, you earn an interest rate which can go from 5% to 50% per year.
The best part about crypto lending is that you don’t have to fear that the borrower runs off with your funds. The exchange holds all the funds and does not allow the borrower to cash out without paying their loans.
Like crypto trading, there are also lending bots available to allow investors to automate the lending process and let the lending process run on autopilot.
So what are the drawbacks of lending? The most significant disadvantage of lending cryptocurrencies is that you are susceptible to losing all your funds if the exchange closes down or runs away with your money.
It has happened before in the past, and it is likely to happen again. So there is a level of risk if you invest heavily in a single exchange.
Are crypto lending and crypto trading safe?
To put things in perspective, there is no absolutely risk-free method of investing in cryptocurrencies. It depends on the investor’s risk appetite and understanding towards crypto investments.
If you are careful and diversify your investments according to your risk appetite, you can earn a healthy profit from these two methods.