Afraid of crypto loans? I'll teach you a step-by-step strategy to use debt to your advantage "cheap money and securing it".
Hello Investor!
You have probably seen the "Loans" (Binance Loans) button in your menu and feel scared to use it. That's normal. Misused debt is dangerous, but when used well, it is a powerful tool to grow your portfolio.
The image above summarizes an advanced strategy used by professionals, but today we are going to explain it "in simple terms" using only 100 USDT as an example.
The goal: To have more Bitcoin than you could buy with your initial money, but sleeping peacefully.
📚 Quick Dictionary before starting
To understand this trick, we need to clarify 3 key concepts that you will see on the Binance Loans screen. Imagine you go to a pawn shop:
1. Collateral (Your Guarantee):
It is the valuable item that you leave "pawned" for them to lend you money. In this case, you don't leave your watch, you leave your Bitcoin ($BTC BTC). While they are there, they remain yours, but you cannot move or sell them because they secure the loan.
2. LTV (The "Risk Thermometer"):
These are the initials of Loan-to-Value (Loan-Value Ratio).
Think of it as a thermometer that measures how dangerous your loan is.
If you leave 100 USDT in Bitcoin and borrow 50 USDT, your thermometer is at 50%.
The golden rule: The LOWER the LTV number, the safer and "cooler" your loan is. If it rises too much (heats up), you enter danger zone.
3. Liquidation Price (The point of "forced sale"):
If the price of Bitcoin falls significantly, your Collateral is worth less and the LTV thermometer rises. If it reaches a critical point (called Liquidation Price), Binance will have to automatically sell your Bitcoin to pay the debt. This is exactly what we are going to avoid with our strategy!
🛠️ The "Shield" Strategy
Look at the cover image while we follow the steps. We will use 100 USDT and simulate that 1 BTC costs $90,000 (to simplify calculations).
STEP 1: The Initial Investment (Stage 1 in the image)
You have 100 USDT in your Spot Wallet and decide to buy Bitcoin.
Action: You buy BTC in the Spot market.
Result: You have 0.0011 $BTC
STEP 2: Request the Loan (Stage 2 in the image)
Now we are going to "pawn" that Bitcoin to get extra liquidity.
Action: You go to "Loans". You deposit your 0.0011 BTC as Collateral. You borrow 50 USDT.
The LTV Thermometer: It is set to 50% (Medium Risk). If Bitcoin falls a little too hard, we could get nervous.
STEP 3: The "Shield" - The Master Move (Stage 3 in the image)
This is where the magic happens. Most people would spend those 50 USDT borrowed on something else. We don’t!
Repurchase: We use those 50 USDT borrowed to go to Spot and buy MORE BTC (0.00055 BTC extra).
The Shield: We go back to the Loans section and use the "Adjust LTV" or "Add Collateral" button. We put that new Bitcoin we just purchased together with the previous one.
What have we just achieved? Look at the final result.
By adding more Bitcoin as collateral, we have made our position much stronger.
Before: You had $100 in collateral and owed $50. (LTV 50% - Medium Risk).
Now: You have $150 in collateral (your original BTC + the new ones) but still owe the same $50.
The Magic Result: Your LTV thermometer has drastically dropped to ~33% (Low Risk/Green).
And how much does the joke cost me? (The Value of Money)
Many fear borrowing due to interest rates, but let’s do the real math. In Binance Loans, rates for stablecoins (USDT) are usually around 4% or 5% annual (APR), much cheaper than a credit card.
Real example with our loan of 50 USDT:
Annual Rate (example): 4.35%
Cost for a whole year: $2.17 USD
Cost for ONE MONTH of operation: $0.18 USD (18 cents)
The Conclusion: You are paying 18 cents a month for having an extra $50 of Bitcoin working for you. If Bitcoin rises by 10% or 20%, the profit more than covers those cents. The cost of money is tiny compared to the opportunity for gain.
In summary:
You control more Bitcoin (50% more than your initial money allowed), but you have lowered the risk of being liquidated. You have created a "protective shield" around your investment. Now you can wait for a bullish rally with much more peace of mind than someone who simply leveraged without protecting themselves.
Disclaimer: This strategy is educational. All loans carry risks and costs (interest). Make sure you understand the terms well before trading.
Community @KiuTrades
