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Everything You’ve Known About Crypto Hodling is Wrong

Dec 29, 2020

Crypto hodling is a fairly popular strategy amongst cryptocurrency users, and is also quite easy to engage in. Hodling involves buying BTC (or any other cryptocurrency) and holding it for as long as you can, in the hope of long-term returns, of course. During this time, the cryptocurrency held is generally locked away in cold storage and is not used for any other purpose.

While there have been times when crypto hodling as a strategy has been able to deliver significant returns, such as during the 2016 and 2017 bull market, it generally does not tend to deliver consistently good returns over the long-term. This begs the question -  do other crypto strategies yield better returns while still not requiring as much effort as active trading?

Crypto Lending As An Alternative

Much like lending in traditional finance, crypto lending is a concept that involves lending digital assets via crypto banks or crypto exchanges. Therefore, it works on the concept of using digital assets as collateral on fiat or stablecoins, while the lender provides the assets required for the loan in return for interest.

Does it work better than hodlings though? Let's compare

#1 Returns

While crypto hodling may produce significant returns if it is a bull market, it is generally a low-return investment. Often, it can take a long time to generate any profitable returns.

In the case of crypto lending, however, there are loans and collateral involved. Borrowers repay their loans with interest and this leads to actual value-creation that is not solely dependent on the market sentiment. This is exactly what Vauld enables for its customers!

Crypto lending interest rates on Vauld

Moreover, lenders need not wait for long periods to make their investment profitable. However, different crypto exchanges can have varied lending policies and different lending rates.

Therefore, if executed via the right crypto bank, crypto lending has the potential to be more profitable than simply holding cryptocurrencies.

#2 Complexity

Crypto hodling is fairly simple as it involves buying and storing cryptocurrencies for long-term returns. Thus, users can participate in the cryptocurrency market without any effort and need not be worried about short-term fluctuations or paying transaction fees.

In this respect, crypto lending is not that complex either. It requires borrowers to pledge their digital assets as collateral, and loans get approved much faster than traditional systems, while lenders can earn interest passively.

#3 Safety of Funds

Safety of funds is often a major concern in the cryptocurrency domain. In the case of hodling, users may lose access to their wallets if they lose their private keys or if they do not remember where they have stored their funds. Such scenarios can be common because hodling involves locking away your holdings for the long-term.

In the case of crypto lending, as long as the platform is a trusted and reliable one, users can have greater surety of the security of their assets.

Reputed crypto exchanges generally outline their security measures on their websites and how the funds are stored, thereby making the process more transparent for the users. For example, Vauld has outlined how they allocate funds and has also mentioned tie-ups, such as BitGo as the custody partner.

Crypto Hodling vs Lending: The Choice is Obvious

It is evident that crypto hodling is not the best strategy for those looking for profitable returns. Crypto lending provides a reasonable alternative to the same owing to certain advantages such as short-term and better returns due to actual value-creation and safety of funds.

In short, provided that crypto lending is executed via a trustworthy crypto bank, it can certainly be considered a superior strategy for generating higher returns on your crypto holdings.



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