Crypto trading platform Poloniex opened up margin trading two weeks ago. I did not see a single news article about this in CoinDesk which I keep tabs on or hear any mention of this being written up in any other crypto news source. Articles about Bitcoin Pizza day, the sentencing of former Silk Road operator Ross Ulbricht, and who Xapo is hiring seemed to be more interesting.
And yet to me, the arrival of margin trading on Poloniex is huge news.
The reason is simple. The flip side of margin trading, the lending of funds to the margin traders, represents the closest thing in crypto to an honest and low risk way to grow one’s Bitcoin (and a few altcoin) holdings while still maintaining liquidity. The rate of return isn’t bad either. The last time I calculated it I got an annual rate of return of twelve percent assuming funds always out on loans. The daily interest rate has double or tripled since then–depending on when you happen to check the order book.
Since the very beginning of my own involvement with cryptocurrencies, back when the only cryptocurrency I had anything to do with was Bitcoin, I was on the lookout for a good way to have whatever Bitcoins I managed to amass earn interest so that my stash would grow. Earning small amounts of Bitcoin was fairly easy between faucets and task sites. But the real fun for me lay in watching the already earned Bitcoins grow into more Bitcoins. In short, I was looking for a way to turn Bitcoin into a passive income stream.
This deep desire unfortunately made me vulnerable to scam websites. I still cringe when I remember the sinking feeling of realizing that I was never going to get my entire half Bitcoin back–because I’d sunk it all into one of those high yield investment programs masquerading as a mining operation, and the site just disappeared one day. Barely a month into the world of Bitcoin and I’d gotten scammed out of everything I’d worked for to date.
I learned to avoid the High Yield Investment Program and Ponzi sites after that. Fortunately I only made that mistake once. But that didn’t necessarily help me avoid the troubles with Bitcoin interest earning sites where the operators were honest and well intentioned, but either the business model was faulty and not profitable or the site got hacked. I wound up as a victim in the Inputs.io/CoinLenders demise. I lost over four Bitcoin in that debacle at the time that the Bitcoin price was pushing a thousand Dollars. Ouch.
I also tried putting Bitcoin into various Bitcoin stocks. Most of them turned out to be garbage. Even the rare good stock had liquidity issues, in that you couldn’t just cash out anytime you wanted to. While we’re on the subject the one Bitcoin stock that has worked out very well for me is the Rental Starter fund on Havelock Investments. No, I did not pay the current going rate for it. Right now it seems to be holding its value nicely, to the point where if I wanted to sell a few shares for some quick cash I probably could. However, that particular stock went undervalued for months. The reason? Trolls on the Bitcoin Forum.
The DNotes Retirement CRypto Investment Savings Plan was a breath of fresh air. It is a straightforward program in which you deposit DNotes into an interest bearing account and they get credited with a monthly bonus. The only problem is you have to lock up the funds for a minimum of five years. The minimum five year lockup is a great feature for DNotes, and it will be great for individual investors five years down the road, but it represents zero liquidity today.
For the past two years, I simply have not been able to find a good way to just earn interest on my Bitcoin (or any other cryptocoin for that matter) while still keeping them accessible in case I decide to spend or sell them.
Now I finally have a way, thanks to Poloniex. I’ve been happily lending out my Bitcoin at around 0.04 percent interest a day. Today the market rate shot up to 0.22 percent and I couldn’t be happier. I set my loans with two day terms, the default term Poloniex sets, so when I decide I no longer want to lend out those funds I simply turn the autorenew button off and wait for the loan to come due. If I leave autorenew on, then the loan will automatically get offered again at the same interest rate. This means that to some extent I can let the process go along on its own. However, the interest rate itself changes so I need to make adjustments accordingly.
I posted a guide on CryptoMoms giving more details about how the lending feature works. The really awesome part about it is that you can offer a loan with as little as 0.001 Bitcoin on hand. As I’ve demonstrated more than once on my CryptoMoms Could I retire on faucets? thread, just one week of aggressive faucet claiming can yield that starter amount. That tiny starter amount can be loaned out at interest while you’re hitting up the faucets for another round. This is literally a financial dream come true.
It also illustrates so perfectly what I absolutely love about cryptocurrencies. You literally can start with nothing but time and an Internet connection, and you can use those resources to little by little accumulate and grow a stash of coins. Of course you have to work those faucets and earning sites pretty hard. But now, thanks to margin trading on Poloniex, the little bit you worked so hard to get last week can now start working for you.