Four Ways to Leverage Your Crypto

While much of the interest in cryptocurrency is limited to investing as an asset, this mindset misses out on many of the unique potentials in cryptocurrency. Decentralized finance is a booming industry that's generating a steady stream of new, unique income opportunities, traditional crypto “mining” aside.

Crypto loan products are proliferating, many of which traditional finance can't replicate.

That's not to say that you can't use crypto as collateral for a loan, however. 

While you can leverage cryptocurrency via traditional margin and even non-recourse crypto loans through services like ours, unique DeFi applications have expanded options for crypto “hodlers.” 

Understanding Decentralized Finance

Before jumping into DeFi loan products, it's worth understanding exactly what decentralized finance (De Fi) is. One way to define it is in opposition to centralized finance, the financial system deployed in most of the world wherein central banks and large financial institutions control money. 

One of the major points of appeal for cryptocurrency is that most coins are totally deregulated and derive their value purely from market actions. Instead of a centralized institution managing financial products, they operate on a peer-to-peer basis. Of course, this raises the question of who enforces transparency and honesty in cryptocurrency transactions. Rather than relying on the power and authority of centralized institutions, DeFi leans on complex code, public ledgers, and automatic smart contracts to enforce transparency. 

Smart Contracts and the Blockchain

Cryptocurrency benefits from public ledgers and blockchain technology that can automatically enact transactions and help to enforce contracts. When the two members of a transaction fulfill pre-set conditions, a smart contract instantly puts its terms into effect. If the conditions are not met, then it can reverse the transaction and return the coin to its original owner. This innovation is at the heart of decentralized finance and powers many of the unique financial products that use cryptocurrency. 

Custodial and Non-Custodial Loans

The rise of cryptocurrency has brought about an entirely new sort of loan. This is what separates traditional, custodial loans from cryptocurrency's unique non-custodial loans. 

A custodial loan is one in which a single entity or individual holds custody of your debt and collateral, so to speak. Your bank or another lending institution might be the custodian of your mortgage, car loan, or another common form of debt. Conversely, there are an increasing number of options that utilize the unique qualities of cryptocurrency to offer loans with no custodian.

These non-custodial loans work in many ways, such as vendors enabling a pool of private citizens to supply their own crypto for loans and earn interest in the process. Once someone takes on these non-custodial loans, a smart contract automatically disperses interest payments among those who contribute to the loan. If the debtor fails to make payments, this same technical protocol can seize their collateral on behalf of decentralized lenders. 

Reasons to Leverage Cryptocurrency: Why Borrow?

Leverage has innate benefits, and margin trading has always been a core component of many investment strategies. In recent years, collateral loans have also grown as a way for the wealthy to augment cash flow without incurring capital gains taxes in some cases. Utilizing cryptocurrency for securities-based loans comes with all of these familiar advantages, but it also has unique use cases and benefits. 

Borrow Against an Illiquid Position 

Cryptocurrencies are generally liquid, but many of the smaller, less-recognized coins do go through periods of illiquidity. Additionally, crypto coins can be markedly volatile. If you're a large holder of a cryptocurrency, you may hesitate to make a major sale because you don't want to contribute to a price drop (the same goes for large stock positions). You may want to access your crypto wealth but find it impractical to do so.

When your position is practically or fully illiquid, borrowing with a collateralized loan allows you to capitalize on that wealth – without losing out on it. 

Swap Cryptocurrencies Instantly

Cryptocurrency technology is consistently producing promising, interesting new financial products with unique qualities. For one, the Aave Flash Loan is the first of many products that allows you to instantly loan a given cryptocurrency for equal collateral in the form of another coin. While this might seem pointless, the fact that cryptocurrencies are not perfectly correlated, and the fact that there are many stablecoins on the market, make swapping a potentially powerful resource. 

Take Advantage of a Bullish Cycle

Margin trading is perhaps the oldest form of leverage, and it's a major component of crypto trading as well. New adopters, bull markets, and rising mainstream acceptance drive astonishing valuation increases, and leverage can be a great way to increase your access during bull cycles. If you're confident in further price increases and have the liquid wealth to deal with temporary dips, then you can make a great deal of money margin trading with crypto. Of course, margin trading amplifies your risks as much as the potential for reward.

Capitalize on a Bear Market

The cryptocurrency community is considerably more alternative than the mainstream financial system, and this community has produced a somewhat crude proverb on the value of bear market investing: "Buy Bitcoin when Reddit pages link the national suicide hotline," the saying goes. Crude but illustrative.

It's easy to fantasize about missing the opportunity to profit from incidents such as the January 11th, 2021 price drop, where crypto markets rose to stratospheric heights, crashed, and boomed again. But you'd have earned far greater profits had you taken on a long position at any time in 2020. Using a collateralized crypto loan to buy more cryptocurrencies while prices were low and stable has been a consistently reliable way to gain from crypto over the last decade. Will it last forever? Time will tell. 

Of course, collateralized loans carry inherent risk, particularly in markets as volatile as many of the smaller cryptocurrencies. Furthermore, the unregulated nature of cryptocurrency means that institutions in this industry don't have to maintain a minimum level of liquidity, nor are all institutions protected by backings like the SIPC (Securities Investor Protection Corporation). As such, it's especially necessary to work with reputable organizations and keep risk to a manageable level when dealing in cryptocurrency. 

Four Ways to Leverage Your Crypto

There are several ways to go about leveraging crypto, each with its own unique conditions and benefits. 

Classic Margin Lending

At the end of the day, margin lending, whether custodial or non-custodial, is a worthwhile method for leveraging cryptocurrency. Interest rates and loan-to-value ratios can vary, with some lenders allowing you to take out as much as 90% on the value of a collateral loan and APR dropping as low as 1% in some cases. Crypto margin lending is one of the most competitive fields of alternative currency-based financial products, so there's no shortage of options. 

Collateralize cTokens

Compound is a unique DeFi institution that allows people to contribute their cryptocurrency to provide non-custodial loans. As you earn interest on your loans, you gain cTokens that are possible to use as leverage for loans paid in Compound's proprietary coin. If you believe in the business and this particular practice, this is a unique way to create an investment that steadily supplements itself.

Aave Flash Loans

Aave is one of the chief innovators in the cryptocurrency space, and their flagship flash loans are one of the main reasons they have the reputation they do. Flash loans promise to bring utility to anyone who invests in crypto, but particularly day traders. Being able to rapidly exchange debt or loan value for an alternative coin creates opportunities to game exchange rates, mitigate losses, and more. 

Loans That Pay Themselves 

Alchemix is a smaller player in the world of cryptocurrency that nonetheless has big ideas with the potential to affect major changes in the industry. In particular, they offer a loan product that aims to eventually pay itself off. These collateralized loans use your investment to generate future yields of new crypto coins, and these yields contribute to the payment of your loan. Given the right market conditions, this function may enable Alchemix to grow rapidly while sharing the rewards with adopters of their loan products. 

Non-Recourse Crypto Loans

At, we specialize in non-recourse crypto loans to help illiquid or large position holders access cash when they need it. Our capabilities include:

  • rapid closing in as little as 72 hours
  • the ability to lend against positions of $500 million or more
  • personalized service
  • non-recourse terms that keep things simple
  • global capabilities

The world of crypto lending is expanding in ways we might not have imagined 10 years ago, but the regulatory framework for crypto borrowing remains loose. Whether American and European regulators will pull the rug on the flood of unique defi early movers remains to be seen. In the meantime, our team has been helping securities owners of all kinds access liquidity for more than two decades. Inquire now to find out how a fast, non-recourse crypto loan can work for you.