Earning More of a Cryptocurrency: Interests and Lending
Image: Automatic bitcoin lending with Poloniex bot.
Feeling tilted? Cryptocurrency trading can sometimes feel more like gamble and you sometimes might just get too tired to ignore your emotions.
If you don’t feel like playing the coin game right now but you still want your money to earn something, keep reading. Lending can be an effective strategic tool for traders when they don’t want to trade but want their money to be earning something.
That’s right, a nice way to earn daily interest rate on coins that you are not planning to risk at the moment. The lowest possible loan period is 2 days so don’t worry that your coins will sit somewhere for 2 months. They might but it’s not necessary.
Now, the title says Poloniex. Bitfinex has the same system of margin funding as Poloniex - your money is provided by other users who placed a loan offer for a daily interest rate that was lower than the maximum IR you specified. Bitfinex rates are usually a tad lower though, and in November 2017 they shut down for verified US customers. If you are American and want to lend your money on an exchange where you are verified, Poloniex is currently your only option.
The main difference for you as a lender is that Poloniex is altcoin exchange and people borrow tons of bitcoin. Bitfinex lists altcoins but it is still predominantly a USD denominated exchange – people mostly want to borrow dollars.
- On Poloniex you have the option to earn good interest on a cryptocurrency that is itself also appreciating in terms of USD value.
- On Bitfinex, typically the BTC and altcoin interests are not worth it.
As a side note - both Bitfinex and Poloniex are rather shady places. For lending you are putting your money at risk not because it would be possible for the borrower not to return them (which is not possible in crypto) but because you are leaving money on an exchange that is in both cases rather untrustworthy, rather buggy and with rather unresponsive customer support. If you are lending, the rates you go for should pay well enough for you to undergo this risk.
Getting the edge
Sure thing more people are earning on Poloniex now which means you will need some unfair advantage, like a lending bot. There are even communities and tools that gather crowds of people to become a lending whale together – one of them, Cryptolend, recently started charging a fee for the service but free and freemium alternatives are cropping up.
Community cryptocurrency lending platforms:
Funding system on BitMEX
While Poloniex and Bitfinex are the only places that will let you lend your money without trading, on BitMEX perpetual swaps you can make use of the swap funding cycles. You need to have a position open – for that you will either pay or receive the lending fee, depends on the market. Because the funding only changes once every 8 hours, sometimes the opportunity occurs for a short timespan that you can open a profitable or breakeven position and collect the funding.
Lending bot for Poloniex
Well the very first thing is you want to set up an account on Poloniex.com. Even if you have one already, it might be better to set up a new one for lending only. After all, with the lending bot you are having your API key and secret in a text file in plain text on your normal day-to-day computer.
As a second thing you need to transfer some bitcoin to Poloniex and as it comes, transfer it from exchange wallet to lending wallet. The lending bot will get your available lending balance and split it into smaller chunks that will be offered at a few different rates.
Installing the bot is really easy if you are on Linux. Just clone this Github repo and run the pythin script. If you are on Windows, RTFM. It is a command line script and it doesn’t need a lot of resources, you can run it even from a pretty weak laptop.
On the first run the lending bot will ask you to edit a config file. Copypaste your API key and secret from Settings > API keys on Poloniex. Further down in the file change the minimum acceptable daily interest rate, the default value is too low.
Once you start the bot it keeps waiting and calling the exchange every 60 seconds. If there is some money returned to your lending wallet it will attempt to lend them. It makes a lot of offers that are too high to be immediately filled you have to wait a few minutes.
You have much better chance to hit the spikes with the bot than by manually reloading the order book in web backend.
You can kill the bot once your money is borrowed. It only places the orders, you don’t have to keep it running at all times. Although it is better to keep the bot running because it will attempt to lend any money that returns into your lending wallet.
How much you earn on bitcoin lending?
It is quite a passive income but don’t expect too much unless you have a lot of coin to lend.
Nowadays quite a normal interest rate is around 0.3% daily. You will pick up some spikes but you cannot count on them. Also, you will probably switch off the bot some times and your money will not be provided at all times.
Daily interest on bitcoin loans of 0.3% will in ideal case give you about 9% monthly, which minus 15% Poloniex fee is some 7.65%.
If you (realistically) earn 5% netto per month, you still only earn 0.5 BTC on each 10 BTC you lend.
You can lend out most altcoins too on Poloniex but expect much lower interest rates with spikes whenever the opportunity is to short.
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About the author
Written by tradingfanbois
JMT under the Twitter handle @tradingfanbois has been deep in bitcoin markets since late 2014. It is the person who takes care of our office. Also answering your Quora questions regarding Bitcoin, cryptocurrencies and technical analysis.
Opinions are author's own.