Investment of any sort is risky and is mostly played by rules by all genres. Even a child when he sets up a trade of toys exchange quickly analyze benefits he could reap and risks he could face, then how could the world of crypto backed loans be spared? Today’s post is all about the rules, precautions to be taken while signing up for crypto backed loan.
Three Rules of Crypto backed loans
Rule #1 – Diversify your Portfolio
Distributing your investment to multiple borrowers based on loan amount, geography or duration is the first rule to be followed. So, for example, if you have planned to invest 10 BTC amount, then break it into chunks, i.e., funding 2BTC for five borrowers that is a mixed bag of long term or short term and belongs to developing and developed nation.
By choosing among the developed/developing nation, you are reducing your risk of default, and while long-term loans help in reducing the workload of follow-ups, short-term offer the benefit of reinvesting and improving liquidity. So choose accordingly.
Rule #2 – Know the Risks
While lending offers benefits of high returns, it is still in a nascent phase with very less awareness. So if the borrower fails to repay the amount, would it lead you to bankruptcy? Or analyze the amount of how much you could lose say the borrower is new and does not have much knowledge on the latest technology, so make sure all of your eggs are not in the same basket. Crypto backed loans are high on returns but also come with high risk.
Rule #3 – Analyse, Learn and Realign your investing techniques
Well, there is no rulebook of crypto backed loans technique that one could follow and eliminate risk, but make sure once every fortnight or even monthly analyze your crypto portfolio in terms of returns and realign or redistribute to make it profitable.
All it takes is time and perseverance to get good returns on crypto backed loans; it’s like sowing the seeds and watering it daily until you see the flowers and finally fruits. However, beware of harsh sunlight, thunderstorm, weeds, and pests that could harm your investment.
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