Despite the fact that I really don’t have any fiat disposable income to invest, I have managed to get myself added to numerous fiat investment themed email lists. I occasionally read the emails they send.
Yesterday morning, my email alerted me to a little known opportunity to very lucratively invest a mere twenty-five dollars. Of course I was interested. I’m not so hard up that I can’t spare $25 on a good opportunity. The first link I clicked on led me to a page with much hype and little actual information. I skimmed the hype page to figure out which key words to use to search for some real information. The real information I found came in the form of this also lengthy, but actually informative, article.
The opportunity is a legitimate one. The consequences for people who get caught promoting scams in the fiat world at this point are far worse than for those who scam in the cryptosphere. The little known website mentioned in the hype piece is Lending Club, a website for peer to peer lending. Another similar website is Prosper. Borrowers, many of whom might not be able to access conventional bank loans, can apply for loans and investors can lend funds to their loans at any amount they wish beginning with $25 per loan.
So let’s say I have only $25 to invest. I can carefully choose a loan to fund and hope that the borrower actually pays me back at the agreed upon rate. If I’ve chosen a good loan, then I will recover my $25 plus some interest, and I can then place it into another loan to earn more interest. The problem, of course, with this scenario, is that no matter how small my capital (in this case, $25), it is always a bad idea to invest it all in once place. The best way to spread out my risk is to invest in more than one loan. How many loans are enough diversification? Lending Club recommends investing in at least 100 loans. The site even has a program to automate the investing based on parameters you set. With a minimum investment of $25 per loan, that means that to be properly diversified, you must invest at least $2,500. This way, if one or two loans default, you will still recover most of your principal and enough interest to make up for them. Diversification is a wise strategy.
The catch is that this lucrative $25 opportunity has now turned into a $2,500 opportunity. For many investors that is no big deal, but as I mentioned, I am hard up in the fiat world, and no, I do not have $2,500 to play with. If such a sum were to randomly show up in my mailbox it would go towards paying bills, not investing. It’s way more than I can afford to lose, so not going to happen. Once again, despite the marketing claims, investing in Lending Club or its equivalent is not appropriate for small investors. This has been my experience with checking out investment opportunities in the fiat world. Whether it’s minimum one time or minimum monthly amounts, flat trade fees (the cheapest I’ve seen is $6.95, which doesn’t work for a $100 trade), or even a minimum net worth just to participate, it’s been the same story over and over for me and others in my income bracket: I’m priced out of the ability to invest my meager fiat holdings in order to better my life.
Fortunately, Bitcoin has changed all that. Bitcoin has gotten a lot of negative press attention lately as being broken or inadequate in various ways. It’s too volatile. It’s too technically difficult. It’s too risky. It’s too slow. There is certainly truth to all those claims and many others the media is wont to make. However, there is one amazing and positive thing about Bitcoin (or more specifically, Bitcoin’s infrastructure) that has been consistently overlooked. To illustrate, I want to revisit one of my Bitcoin investment opportunities that I recently wrote about.
I love the idea of lending out funds to borrowers, especially if it’s not up to me to fund their entire loan. But $25 is still too much for me to risk on a single loan. What I need is a way to diversify my $25 stash, and I can do that with Bitcoin, thanks to BTC Jam. With BTC Jam, I can invest literally any amount I want. I just put in 0.0001 BTC into a random loan to test this. At today’s Bitcoin price, that amounts to the fiat equivalent of 3.7 cents. It may be possible to put in even less, but even for a dirt poor investor, 3.7 cents is probably low enough. At 3.7 cents per loan, I can diversify quite a bit with $25. In fact, I can spread my $25 capital outlay over 675 loans! That’s even better than what Lending Club recommends.
Realistically, though, it’s going to take me a very long time to manually invest 3.7 cents in 675 different loans. I would want to let BTC Jam do the work by creating an autoinvest plan. The autoinvest plans do come with some limits. The least you can invest into one loan using an autoinvest plan is 0.0067 BTC, which amounts to $2.47. So, with $25 to spend, you’ll only be able to spread your risk out over ten loans–not the best, but you’re still diversified. I would recommend choosing a conservative autoinvest program to reduce the chances of losing principle from loan defaults.
The other limitation is that the minimal amount you can use to create an autoinvest plan with is one Bitcoin. That amounts to $367.64 at this writing. But no need to get alarmed. Once you create the plan, you do not have to deposit the entire Bitcoin all at once to get started. Start by depositing what you have, and add to it later. Perhaps you could swing $25 or even just $10 a month until your plan is fully funded. Even if you did put in the entire Bitcoin all at once, you have still invested far less than Lending Club’s recommended minimum of $2,500. And you would have that single Bitcoin divided into 150 different loans–half again as much diversification as Lending Club recommends.
BTC Jam is just one solid site where a small investor can begin to grow his or her funds. For investors that have more time to manage their investments, another solid opportunity is lending to margin traders on Poloniex. The catch in both cases, of course, is that the investor has to first convert fiat money to Bitcoin (or acquire the Bitcoin some other way). Yes, there are certainly risks to that, the biggest one being that you could pay over $300 for one Bitcoin and then watch it drop to $200 while you have it tied up. The Bitcoin price has gone up and down many times and probably will do so many times more during a normal loan term, so I personally do not worry too much about that, instead consider growing my Bitcoin stash to be a long term project. However, the recommendation to only invest what you can afford to lose is even more important for the small and poor investor than it is for the large and wealthy one. This means that funds you put into any kind of investment should be funds that if lost would not devastate you financially. They could represent money saved from giving up a cup of coffee or a pack of cigarettes or some other luxury that you allow yourself. Even poor people have those, especially in developed countries. They could also represent money that you budget for that purpose as well. Either way, it’s important to not put pressure on yourself for the funds to grow at a certain rate, or even at all, as that will cloud your thinking.
It is, of course, the advice to only invest what you can afford to lose coupled with the high entry barriers in the fiat investing world which shuts poor people out of the opportunity to use investment as a way to gradually climb out of poverty. While the advice still stands, Bitcoin has lowered the entry barrier by orders of magnitude, making it possible for small investors to get involved. Of all the amazing and disruptive ways that Bitcoin has changed the way finances work forever, in my opinion this is one of the best, and strangely, least talked about.