2022 was the year of self-inflicted wounds in the cryptocurrency market that eventually lead to the demise of the bull market. Insolvencies spread like wildfire across many of the biggest crypto-related companies, such as 3AC, Celsius, BlockFi, Voyager, Vauld, Hodlnaut, and the list goes on. All culminating in FTX’s fraud being discovered.
The situation became so bad that many experts were declaring that the death blow to Bitcoin and crypto had finally been dealt. That the market would never be able to recover from this. Throughout this whole ordeal, there was one type of company in the crypto market that was hurt the most. Third-party crypto lending companies. Companies such as Celsius, and BlockFi would pay you interest, in order for you to give up custody of your crypto and lend it to them.
Leading up to the bull run in 2021 when times were good, the opportunities to earn an incredible passive income were everywhere. And they were all offering great interest rates. All you needed to do was to pick a service, click a few buttons, send them your Bitcoin or other crypto, and begin earning interest. For a short time, it was a great thing.
I won’t deny that during this time I was an advocate of this service. I always accepted that there was a risk, but it was an opportunity that was earning me several hundreds of dollars per month. I began to have dreams that in the future as crypto prices continued to rise, someday I would be able to live solely off of this passive income.
But as we later would find out, the risk was much more than many of us imagined. Many of the companies listed above had been hurting for money for years, and some of them had been insolvent for just as long. Eventually, the real situation was found, and these companies were forced to freeze users’ assets on their platforms. With them having no guarantee that they will ever see any of their crypto again.
As time passed, and people began earning a lot of money from these services, we began to forget the most important thing. That lending out your Bitcoin is like picking up pennies in front of an oncoming freight train.
In their heyday, many of these services were offering around 6% yearly interest for Bitcoin. It seemed great, but many of us forgot how small that is in the grand scheme of things. On a yearly basis, Bitcoin often appreciates by at least 50%. With something that is appreciating as quickly as Bitcoin, there is no need to try and squeeze out even more yield from it.
We forgot how much of a pristine asset Bitcoin is. That in the future it will likely be worth several millions of dollars per coin. And we gave it up due to greed, and trying to earn an extra 6% per year. Bitcoin is truly a treasured asset that needs to be protected at all costs, and some of us forgot that along the way.
However, there are still a few lending crypto services that are still alive “for now”, such as Nexo. It is almost a guarantee that other lending services will once again appear as time goes on. If a company can figure out a responsible way to run that business, there is money to be made.
With that said, many of us have PTSD from everything that happen last year with the summer of crypto insolvencies. Many of us will never be able to forget what happened.
So what would it take for you to ever consider lending out your Bitcoin and crypto to a 3rd party lending service? Would you ever consider doing it? Or have you learned your lesson for good?
Even though I was a heavy Bitcoin lender last cycle, I was very lucky that I paid extremely close attention to the markets and escaped unscathed as soon as I began to see trouble. There were some close calls, however. These close calls really made me question what I was doing, and how much regret I would have had if I lost everything. Therefore I don’t think I will lend out Bitcoin again. Especially not until there is a much safer option. For the time being I continue to accumulate as much Bitcoin as I possibly can. But, I have also put more of a focus on building positions in crypto that can earn passive income through staking, such as Ethereum.
How about you? Would you ever lend your Bitcoin and crypto to a 3rd party service again?
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