How to Invest in P2P Loans Successfully at Btcpop
»» Video on P2P Loans
If you're reading this you likely you own Bitcoin and are ready to invest! It an exciting and intriguing proposition. Borrower and lenders interacting through a P2P platform using P2P currency to transfer value and earn interest. Highly new and innovative, the possibility of near frictionless global investment completely outside of 3rd party systems was not even remotely possible more than 5 years ago.
Combine that excitement with the high interest rates and great reputations of borrowers on the platforms and hear the successes of other lenders. It seems almost foolproof and very exciting. Banking of the future!!!
P2P lending comes with added responsibility and added risks for investors
Btcpop is a Platform not a Bank
Btcpop is a free market platform that enables users to interact and perform banking functions Peer to Peer using Bitcoin. So while this model is innovative and much more efficient cutting out the middleman between the transaction. This requires the lender to replace the banker and do more of their own due diligence in order to make sound investments.
The key realization that investors should make is that Btcpop is just a platform for P2P banking. Btcpop is not a bank, and while Btcpop works to provide the best industry tools to borrowers and lenders, the responsibility still 100% falls on the investors shoulders.
Investors Due Diligence
investors are responsible for researching and making sure an investment is sound before they invest their bitcoins. Even though they can create money out of thin air, bankers still usually go through a significant amount of due diligence before they lend money out to people. Btcpop provides tools to help make this due diligence efficient, and the community works together to stop scammers.
Tools Btcpop provides to help investors
- Collateral- Collateral is arguably Btcpop’s biggest innovation and P2P lending's most needed tool. Altcoins are exceptionally good collateral, and arguably the best collateral in the world with their perfect ownership and global online markets. Btcpop also allows P2P shares to be used as collateral, and for very trusted share issuers, these are also a great form of collateral.
- Btcpop takes great care to verify borrowers
- Identity and Address Verification: All users must verify their address. If their API scores come in too low they must pay to receive a physical letter to verify their address.
- Document Verification: All documents are verified to be authentic by the owner of Btcpop himself. This includes selfies and videos users can take of themselves to further verify their identity. Documents include:
- Drivers license
- Utility Bill
- Selfie video
- Pay stubs
- Identity cards
- Address and Address+ (physical letter)
- Social media verification: Users connect accounts to Btcpop so investors can view their social media profiles.
- Unspoken investor mentality: Btcpop hosts some of the most experienced P2P lenders around. Meaning they have likely learned lessons the hard way, and they are likely very careful lending out their Bitcoin. If you're trying to steal, I would do it on another platform. With that being said, you can gain a lot of social reputation by assisting the community in stopping scammers. Btcpop is community driven, and social reputation is quite valuable.
Lessons I have learned the hard way on becoming a decent P2P lender (which you should learn from so you don't)
Playing it safe doesn't Guarantee success
At first I thought If I just play it safe, high reputation borrowers, low APR, and Diversification I will get positive ROI. Wrong. First off you will not “get” anything, you must earn a positive ROI by doing your due diligence on every investment as well as having a clear strategy and sticking to it.
I highly recommend a common strategy and not bringing any emotion into any investment...ever.
Rating systems and the intelligence of the crowd don't do the work for you
When I started out, I thought that the Rating systems and intelligence of the crowd would almost all of the work for me. Wrong. I started my P2P lending career in 2015 at Btcjam.com. It was a fun and exciting time, the community was thriving, Bitcoin price was stable, and borrowers appeared to be paying back loans with high interest. I thought the between cloud intelligence and Btcjams rating system I was set just investing in A loans.
Boy was I wrong...the crowd will and has continued to fund bad loans. And rating systems simply do not work. Approach every Loan as if the rating is a F.
Just because a loan is backed with 100% collateral doesn't mean its safe
I invested in a loan once thinking, this has 800% collateral this is a sure thing! Wrong. Always look into what the collateral consists of. Some Altcoins and Shares have almost no liquidity and are volatile themselves. You also need to discount the value to the realistic market percentage.
Make sure you fully understand who you are investing in, their connection to the shares, and the liquidity and realistic price for shares and altcoins in a default.
Don't trust Friends
I invested more than my strategic amount in some borrowers because I chatted with them and considered them friends.
Never mix friendships with lending.
Also never invest a too large of percentage of your holdings in any 1 borrower, ever. This includes P2P shares, bonds, and loans. Keep your risk diversified and make sure you are able to handle that person defaulting. If you ever think “boy I would be screwed if this person defaulted” you need to reduce your exposure immediately.
Methods I have used to become a successful P2P Lender
- Sometimes No investment is the best Investment: Keep your P2P funds working for you and earning interest in Btcpop’s “Instants Pool” until you find good investments. A bad investment can offest any gains above what the risk free pool provides.
- On the Edge, Don’t Invest: If your on the edge about investing in a loan “Don’t!” or else just invest 1/10th of what you were thinking and live to invest another day
- Research Collateral: Don’t just look at the percentage, look into the collateral and who controls it if its a share. Some collateral has very little buy support and could go to 0 as easily as the borrower.
- Big Lender, Bigger Research: I know it seems counter intuitive but there has been and will be ponzi schemes in crypto. While they may have more lent and a better reputation, large loans still = large risk and should be researched.
Always look for Ponzi Red Flags: Some indicators are:
- Increasingly larger loans
- High dividend or ROI that doesn’t fluctuate with market
- Collateral above 200% of their own shares or shares they are highly affiliated with
- APR rates above 30%
- Don’t fully understand where profit is coming from
- Won’t show proof of funds but claims to have a lot in exchanges and such
- Lending on other platforms
- Really wanting to take out a loan and being willing to pay increasing rates or doing multiple listings until they get one
- Use Statistics to Analyze Loan listings: Statistics will become an increasingly valuable tool for P2P investing.
- Never expose more than .5% of your holdings to a particular borrower. It seems low, but trust me it is a good maximum level to expose yourself to 1 particular person to Invest In
- Scammer Hunt your listings: Doing your own digging can be profitable and rewarding.
Loans to Invest in
- Loans with 50%+ collateral: Collateral is the lowest risk way to gain returns and the interest to risk ratio is the best. Users with collateral are much less likely to default as they have something to lose.
- Loans of the main borrowers on the platform: If you're not sure who the biggest or best borrowers on the platform are just ask chat. Borrowers that have paid back 100Btc+ are not likely to default. But, Don’t invest more than .5% of your holdings in any 1 user unless its Casimir1904 then just invest all you have.
- Loans that main investors invest in: If you keep up with loans going on at Btcpop you and look at some funded ones you will start to get the idea who the big investors are. Big investors have a lot of Bitcoin because they are good. Invest in the stuff they invest in.
- Loans with <30% APR: The higher the APR the higher the perceived risk. The tortoise beats the hair at P2P lending as 1 default can wipe out any extra gains from higher risk borrowers.
- Loans of users who are mean to defaulters: If the person is mean to people that default, the borrower is more likely a moral person and less likely to default.
- Loans of users who are active in the community: If a user has built social reputation, talked on chat, commented on loans, posted things in forums. That user is less likely to default. Make sure their interaction is positive though. Don’t invest in trolls or annoying users
- Loans of people growing an already successful operation: People who have already been successful are more likely to continue to be successful. For example if someone is doing well at localbitcoins trading and has good reputation to back it, I am happy to invest in growing that success even more.
Loans to Not Invest in
- Reputation loans: too risky for me, let experienced researches vet the rep loans and get the high interest they offer.
- Loans of people who get money from the government: As a landlord I have seen how destructive government money is on a person. I will not invest in the loans of somebody who receives their money directly from government. Pay or subsidy. There are of course exceptions to this.
- Loans of people asking for help: I invest in investors. People that want help fixing their car, or paying off an unexpected bill are not loans I want to invest in.
- Loans for starting a business, website, or any other venture: I know how risky entrepreneurship is. I refuse to take on any of that extra risk in a P2P Bitcoin loan.
- Loans or people that are not transparent: If someone doesn’t say what exactly they are doing with the funds or if I don’t believe they will do what they say with the funds, I will not invest in their loan.
- Loans for mining especially cloud miners: There are exceptions to miners. Good miners are a good investment. But I have learned the hard way to not invest in miners especially people that want to cloud mine.
- Loans of someone that is getting too big too fast: The best time to get out of lending to someone who is overdoing it and doing too much too fast is way before it gets to be too much. This is subjective, but after some experience you can tell.