Timeline for What are the legal and tax implications of crypto lending?
Current License: CC BY-SA 4.0
18 events
| when toggle format | what | by | license | comment | |
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| Aug 31, 2021 at 14:09 | comment | added | Grade 'Eh' Bacon | @arj Sounds like your mind is made up, but remember that above all else, high rewards implies high risk. You are casually dropping the idea that it is perfectly normal for 'institutions' to borrow funds for shorting crypto, but rest assured that this is the sort of activity that would have most seasoned investors' eyes bugging out of their heads. You shouldn't lend money to someone walking into a casino. | |
| Aug 31, 2021 at 3:21 | comment | added | ARJ | @Grade'Eh'Bacon They also run validator nodes for staking coins, in other words mining new tokens. So they also make money from that (which is why they can offer high interest rates for a few tokens). For example MATIC tokens, which I plan on staking, have 10% returns primarily because of high staking rewards. | |
| Aug 31, 2021 at 3:16 | comment | added | ARJ | @Grade'Eh'Bacon Well, crypto is only loaned out to institutions. Individuals can only take out cash loans, which are actually provided at very reasonable rates (1%-7% APR) depending on how much collateral you put down that is. Most revenue comes from lending to exchanges/institutions for liquidity and investing purposes. So its not trying to profit off of individual speculators. High interest-paying crypto loans for exchanges and alike make sense since they can have multiple use cases (liquidity, shorting crypto, etc). | |
| Aug 27, 2021 at 13:03 | comment | added | Grade 'Eh' Bacon | @arj borrowing money in order to speculate is a recipe for disaster. Aiming to profit off of such misery by lending funds to such speculators is definitely in the same cookbook. | |
| Aug 26, 2021 at 22:45 | comment | added | ARJ | @Grade'Eh'Bacon Well borrowers might find this appealing for a couple of reasons, even though I find it very risky and unreasonable. First, they can take out stablecoins as a loan, which are pegged to the dollar, use them to buy crypto, and profit off of any volatile price spikes like with DOGE. Or they can speculate on borrowed crypto funds. | |
| Aug 26, 2021 at 13:35 | comment | added | Grade 'Eh' Bacon | @arj Why would someone put 2x collateral up against a crypto loan? If you had 2 BTC on hand, why would you choose to borrow another BTC, instead of just using what you already own? Doing some digging shows they offer 17% interest. Do you understand how insanely risky that implies this is? That would imply that they are turning around and earning a profit on 'deposits' by offering loans at like 30%+ interest. Who would be borrowing from them at these rates, if not speculators looking for crypto price jumps? | |
| Aug 25, 2021 at 4:03 | comment | added | ARJ | If the person fails to pay the loan plus interest back, the collateral will be liquidated to make up for it. Now, of course some platforms will seem untrustworthy. Many are. But when a platform has close to a million registered users, more than $20B in community assets, more than $400M in paid out interest, and registered with FinCEN, it passes off as trustworthy to me. Of course, that's just my opinion though. | |
| Aug 25, 2021 at 3:53 | comment | added | ARJ | Also, I'd like to add to this discussion and help shed some light on crypto lending. First and foremost, like @dave said, no one directly lends to another person. The crypto invested on a centralized financial service platform is accumulated in a pool fund. A person wanting a loan would apply to the financial service provider, and after KYC and other contractual agreements are made, the loan is given on a collateral for their crypto. Usually, the collateral is required to be double in value than that of the crypto loan. | |
| Aug 25, 2021 at 3:29 | comment | added | ARJ | I didn't write that comment in the way you're interpreting it. All I wanted to say is that if putting money in a savings account doesn't make me an MSB, then storing my crypto on a centralized lending platform shouldn't make me an MSB either. | |
| Aug 24, 2021 at 16:17 | comment | added | Dave | I am really not arguing that this is a good instrument. I am trying to use comments to improve the answer, by pointing out that it reads like you expect the OP to be trusting an individual, rather than an organisation that claims to have offices across 3 countries and $20 billion in "community assets". There is a real risk that they are total scammers, but that is different from someone not being able to pay you back. I would not give them any of my money. | |
| Aug 24, 2021 at 15:22 | comment | added | Grade 'Eh' Bacon | @dave how many alarm bells are too many for you? At what point is it okay to admit that the protections offered by our modern financial institutions are preferential to the under-regulated Wild West of crypto? | |
| Aug 24, 2021 at 14:54 | comment | added | Dave | Kind of, in much the same way a bank does. It totally could be a scam or ponzi scheme as far as I know, but it is not lending to an individual. | |
| Aug 24, 2021 at 14:38 | comment | added | Grade 'Eh' Bacon | @dave So 'Celsius Network' [whoever they are] guarantees your investment made to a 3rd party through their site? Why would they do that? Why would they take on the credit risk when acting only as facilitator? All of this screams poorly informed / bad idea to me. | |
| Aug 24, 2021 at 14:35 | comment | added | Dave | Yes. I am saying your answer makes it sound like you have to trust a single individual "If you lend 1 BTC to someone, what are the chances that they can pay you back?". That is not the case. An organization maybe 1% the size of a bank is more trustworthy than a single stranger, but less trustworthy than a bank. I think you question is generally correct, just that it seems to understate that the Celsius Network provides some level of security. | |
| Aug 24, 2021 at 14:28 | comment | added | Grade 'Eh' Bacon | @Dave Are you suggesting to invest in 'trustless' bitcoin, only to turn around and put your trust in an organization maybe 1% the size of a bank domiciled in your own jurisdiction? Do you see the contradiction in aims? | |
| Aug 24, 2021 at 13:03 | comment | added | Dave | There are third party intermediaries who facilitate this lending, and protect you from another individual "doing a runner". Sure, these companies are not as secure as major banks, but it is not like if that one person does not pay you are out of pocket. The not being able to sell is a very real issue. | |
| Aug 24, 2021 at 11:21 | comment | added | SJuan76 | To help visualize, if I borrow $10.000 to buy a car I may reasonably hope to pay back $10.500 next year, and you may check that I have assets to cover it. But if I borrow $10.000 in BTC, maybe next year I need to pay $30.000 to return that amount of BTC and I cannot afford it, and all you can get back is $15.000. Which means that you have lost $15.000 compared to what you would have if you had not borrowed the BTC. Also, if the value of the BTC decreases, you cannot sell it six months from now (say at $7.500) but will have to wait a year to recover a BTC that would then have a value of $5.000. | |
| Aug 23, 2021 at 13:45 | history | answered | Grade 'Eh' Bacon | CC BY-SA 4.0 |