Making Bitcoins lending at Poloniex
This week we did some research on lending Bitcoins to earn interest. We normally invest in Bitcoin Gambling bankrolls so this is a little different from what we normally do. We want to add more places that we invest in to get some diversification and Bitcoin lending seems like an obvious opportunity.
On the Make Bitcoins page we mentioned Bitbond as a way to lend Bitcoins, and sure you can lend Bitcoins there and earn interest. However, it is more like a payday loan in that you are lending to someone with essentially no collateral. The interest rates are currently higher at Bitbond than on Poloniex. However, at Poloniex it is EXTREMELY safe compared to Bitbond.
Why is it safer at Poloniex than Bitbond?
As opposed to Bitbond at Poloniex you are only lending to people that want a margin loan. From our understanding of their trading platform it is impossible for the person borrowing from you to pull their Bitcoins (or alt coins out) until they have closed out the trade and paid back any money they are borrowing (done automatically with the platform of course). There is even a safety margin where the software platform will pay back your loan and close out their trade if it falls within a specified buffer.
The only real risk making Bitcoins lending at Poloniex from what we can tell, is that you are giving the site control of your Bitcoins. Just like Bitcoin Gambling Investing the site has 100% control of your Bitcoins. So if the site runs away or gets hacked then you could lose everything.
This is one the of current cold wallets used by Poloniex (as of writing this article) – 12cgpFdJViXbwHbhrA3TuW1EGnL25Zqc3P. Well over a Billion USD of Bitcoins has moved through the wallet to date.
Just to re-cap the difference between lending at Bitbond versus Poloniex:
- At Bitbond there is no real system in place to ensure you get your Bitcoins back from the borrower.
- At Poloniex there is an automatic system in place to get your Bitcoins back after the loan is complete.
- With both sites you are giving control of your private keys to them. Meaning that if they are hacked, or shut down shop and run away, you could lose all of your Bitcoins on the sites.
How much can you make at Poloniex?
So all loans earn interest on a daily interest rate and the length of the loans start at a minimum of two days but can go on for much longer. Interest rates are decided as per supply and demand, much like the price of Bitcoin.
As of this week we have been lending about $2,000 worth of Bitcoins and been getting around 0.05% per day (after the site takes the 15% commission on earned interest) which equates to approximately 20% per year if the Bitcoins are always being borrowed by someone.
We have seen on reddit that people at different stages were getting much higher interest rates and other times much lower. It really depends on whether people want to borrow Bitcoins and margin trade.
Is making Bitcoins lending at Poloniex automatic?
Yes and no. So after two days your Bitcoins can be automatically lent out again at the same rate if you want to make it automatic (to do this you simply leave the auto-renew button on next to your active loan). However, if the market changes and people no longer want to pay such a high fee to borrow Bitcoins, then your open trade to lend Bitcoins will sit there unfilled.
These unfilled loan offers can sit for potentially long periods of time and not make any interest. This seems like a very real risk as you can see a lot more people are offering loans than requesting them as of today:
We are going to invest some Bitcoins in Poloniex month on month and will report on how it goes. Our initial guess it that it will likely make 1%-1.5% interest on average every month.
There is also a daily withdraw limit of $2,000 for unverified accounts that you need to consider, and even if you are verified it only gets to a maximum of $25,000 a day. Our unverified account is shown below:
For your reference we have no affiliate deal with Poloniex and we have no connections with them. We would have preferred to come to the conclusion that Bitbond was the better option as it does have a great affiliate program; however, we believe Poloniex seems like the logical choice for now. Time will tell and if anything changes we will be sure to share the experience 🙂