How to invest in Bitcoin with minimal risk?

28 May 2020
Read: 3 min

Here is the Part 2 in the series of articles on how to invest in cryptocurrencies with minimal risk and maximum profit.

How to mitigate risks when investing in cryptocurrencies?

The high volatility of cryptocurrencies makes them such an attractive investment opportunity but is also responsible for an element of risk. Long term investments are those that cover periods longer than a year and are not suitable for investors who panic after short-term rate fluctuations. If the BTC exchange rate is decreasing, then you should wait for the minimum level, buy cryptocurrency, put it on a cold wallet and wait for the price increase.

However, if you are afraid to take a risk for the entire invested amount, you can insure yourself against losses by crypto-backed loans. Borrowing on Biterest, you immediately cash out bitcoins but they continue to belong to you while you are using a loan.

Biterest provides the highest LTV (loan-to-value ratio) amoung all crypto-backed credit lines as the cash amount is always less than the value of bitcoin collateral. While the LTV is usually not higher than 70% on other platfroms, on Biterest crypto-credit line the initial LTV is 80% and on the P2P Biterest platform it is possible to set any value.

The key feature of Biterest is the ability to contol the risk of Margin Call by additing and withdrawing bitcoin from the balance. Additionally, on P2P Biterest it is possible to set any value of LTV from 1% to 99%. For example, LTV 80% means that you can receive in a loan up to 80% current bitcoin value and risk only with 20%.

Let’s consider on a pessimistic example: You invested $5000 in bitcoin and are prepared to “lose” no more than 20% or up to $1000. Then you applied for a bitcoin-backed loan in the amount of $4000 USD. The highest LTV is 80%, so the required Bitcoin collateral will be the equivalent of $5,000 ($4,000 is equal to 80% of $5,000). Thanks to the loan, you don’t need to worry about future drawdowns of the BTC rate, since the minimum allowable amount for which you have been ready to sell your bitcoin is already in your pocket.

Invested: 5000 USD
Received in the loan: 4000 USD
Risk: 20% or 1000 USD

Now consider on an optimistic scenario: During a 90 day period, the bitcoin price can rapidly grow in several times. Although you have cashed out $4000, the bitcoin collateral still belongs to you throughout the entire loan period and might increase significantly from $5,000 to, for example, $12000. In order to get back the collateral increased in price, you need to repay $4,000 and the $118 of accrued interest. Your total profit from the bitcoin-backed loan on Biterest would be $12000 – $5000 – $118 = $6882

Invested (initial collateral): 5000 USD
Received in the loan: 4000 USD
Interest: 118 USD
Final collateral: 12000 USD
Profit: 6882 USD

To summarize:

– You receive a USD loan secured with your bitcoin on Biterest;
– When the price of bitcoin goes up, the value of your collateral increases too;
– Repay the loan and get your increased collateral back in full;
– Your profit is the difference between the initial and final values of the collateral minus the interest on the loan.

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LTV: How does Bitcoin price affect Loan-to-Value ratio?
1 April 2020

As soon as the loan is issued, you will see the LTV – loan to value ratio of your account. This indicator helps to control the ratio between your used loan limit and the current value of the account balance

Margin Call is under control: How to avoid a forced loan repayment?
24 April 2020

Margin Call is a critical situation in which the borrower’s debt on a loan is forcibly repaid by the user’s collateral because the cost of the collateral at the current bitcoin price does not cover the amount of the used loan limit