Phronesis
Active member
You've heard crypto maximalists yell "DON'T EVER SELL YOUR CRYPTO". Because "We're going to the moon".
And for fuck sake, we all have bills to pay with cash in real-life.
How can I spend my crypto without selling it? Can you eat your cake and still get to keep it?
Yes! you can. And that is what this post is all about.
2 ways to spend your crypto without selling it
There're two ways to spend your crypto without selling. These are:
1.Taking a loan on it
2. Spending only the returns on it
1. Taking a loan on it
The first option for Ashish is to use the services of DeFi lending and borrowing platforms to get a loan. And using his Bitcoin as collateral.
How does this work?
There're tens of reliable CeFi and DeFi platforms for accessing instant loans. Prominent among these are Nexo, Celsius, Compound, etc.
These platforms need you to deposit at least 150% of the amount you want to borrow as collateral to take a loan.
Let's say, you want to borrow $200.
You will have to deposit $300 as collateral in any of the supported cryptocurrencies. In our case, we are depositing Bitcoin.
And you will pay a small interest on this loan for as long as you keep. Usually starting from as low as 5.9% APR to 9 APR.
You can request that the $200 you borrowed be credited into your local bank account.
Or issued to you as a stablecoin or any crypto which you will then have to sell into cash as you choose.
This loan comes with zero pressure. You can choose to repay it anytime you like.
You can also choose to repay it in instalments and as many times as you wish.
Why do the above sounds too good to be true?
If it sounds too good to be true, that's because you're forgetting that you collected $200 but deposited $300 with them.
They lose nothing if you refuse to pay the loan.
The Risk
Is there a possible downside to this?
Yes!
Remember that the cryptocurrency market is extremely volatile.
So much so that, the value of your coins can change by 50% in either direction at any time.
And this volatility affects the value of your collateral on the crypto lending platform.
If the value of the loan goes above the acceptable loan-to-value ratio (LVR), your collateral will be liquidated to recover the loan amount. Usually, you will find what the acceptable LVR is on their website.
To avoid liquidation, you will usually be requested to top-up your collateral to maintain an acceptable LVR.
For example, on most platforms, an acceptable LVR is between 50% to 90%, depending on the coin you deposited.
Let's illustrate using Ashish's $200 loan and $300 collateral example.
If the acceptable LVR is 80% at most, the loan amount ($200) must not be worth more than 80% of the collateral value.
That means if the $300 Bitcoin Ashish deposited falls below $240, he will need to add more funds to the collateral.
Otherwise, the platform will sell the Bitcoin he deposited and remove its $200 loan amount and all accrued interests.
That is the only risk with taking a loan on your crypto. Aside from the risk of the platform running away with your money or getting hacked and losing your money.
And for fuck sake, we all have bills to pay with cash in real-life.
How can I spend my crypto without selling it? Can you eat your cake and still get to keep it?
Yes! you can. And that is what this post is all about.
2 ways to spend your crypto without selling it
There're two ways to spend your crypto without selling. These are:
1.Taking a loan on it
2. Spending only the returns on it
1. Taking a loan on it
The first option for Ashish is to use the services of DeFi lending and borrowing platforms to get a loan. And using his Bitcoin as collateral.
How does this work?
There're tens of reliable CeFi and DeFi platforms for accessing instant loans. Prominent among these are Nexo, Celsius, Compound, etc.
These platforms need you to deposit at least 150% of the amount you want to borrow as collateral to take a loan.
Let's say, you want to borrow $200.
You will have to deposit $300 as collateral in any of the supported cryptocurrencies. In our case, we are depositing Bitcoin.
And you will pay a small interest on this loan for as long as you keep. Usually starting from as low as 5.9% APR to 9 APR.
You can request that the $200 you borrowed be credited into your local bank account.
Or issued to you as a stablecoin or any crypto which you will then have to sell into cash as you choose.
This loan comes with zero pressure. You can choose to repay it anytime you like.
You can also choose to repay it in instalments and as many times as you wish.
Why do the above sounds too good to be true?
If it sounds too good to be true, that's because you're forgetting that you collected $200 but deposited $300 with them.
They lose nothing if you refuse to pay the loan.
The Risk
Is there a possible downside to this?
Yes!
Remember that the cryptocurrency market is extremely volatile.
So much so that, the value of your coins can change by 50% in either direction at any time.
And this volatility affects the value of your collateral on the crypto lending platform.
If the value of the loan goes above the acceptable loan-to-value ratio (LVR), your collateral will be liquidated to recover the loan amount. Usually, you will find what the acceptable LVR is on their website.
To avoid liquidation, you will usually be requested to top-up your collateral to maintain an acceptable LVR.
For example, on most platforms, an acceptable LVR is between 50% to 90%, depending on the coin you deposited.
Let's illustrate using Ashish's $200 loan and $300 collateral example.
If the acceptable LVR is 80% at most, the loan amount ($200) must not be worth more than 80% of the collateral value.
That means if the $300 Bitcoin Ashish deposited falls below $240, he will need to add more funds to the collateral.
Otherwise, the platform will sell the Bitcoin he deposited and remove its $200 loan amount and all accrued interests.
That is the only risk with taking a loan on your crypto. Aside from the risk of the platform running away with your money or getting hacked and losing your money.
