US crypto investors are walking on thin ice in crypto these days. The prices of high-profile cryptos have dropped significantly in the middle of the year.
Bitcoin, for example, has lost roughly 50% of its value in the last two months, while Ethereum has fared worse, falling from $4,800 in November 2021 to $1,000 in June 2022.
One would think that cryptocurrency prices sliding down would be enough to prevent investors from taking excessive risks with cryptocurrencies. But if you thought about it, think again, as a fifth of crypto investors have used a loan to buy more bitcoin, Ethereum, and other investable tokens.
The data comes from a new study by debt hammera financial debt management platform, which makes two key points about cryptocurrencies and personal debt.
Many Americans are taking advantage of loans to access crypto assets.: According to the study, 21% of crypto investors said they used a loan to pay off their crypto investments.
“Personal loans were the most popular, but payday loans, title loans, mortgage refinances, home equity loans and leftover funds from student loans have also been used,” reported DebtHammer.
Investors are going deep into debt: Nearly 19% of those surveyed said they have had trouble paying at least one bill due to the amount of money they have invested in cryptocurrencies.
“In addition, about 15% said they were concerned about eviction, foreclosure, or car repossession because of their investment,” the report noted.
It is never a good idea to borrow for Crypto
Investment professionals urge investors to steer clear of taking on debt in order to dive into cryptocurrencies.
“The cryptocurrency market is a speculative market,” said Anessa Custovic, chief investment officer at Cardinal Retirement Planning in Chapel Hill, NC. “If I was looking for a speculative investment, I might put a little bit of money into crypto, but not a substantial portion of my portfolio.”
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Custovic believes that borrowing money to invest in cryptocurrencies is a toxic idea with no shortage of financial landmines involved.
“I do not recommend taking out a loan to buy cryptocurrencies or other highly speculative assets,” he said. “Paying off a loan is not optional and not doing so would be catastrophic for your financial health. If your investment lost almost all its value, could you repay the loan without too much trouble? If the answer to that question is “no”, then walk away.”
Custovic is not alone in that perspective. Other investment professionals say that cryptocurrencies are fraught with risk right now and not worth the sleepless nights brought on by declining investment returns and additional loan debt.
“It’s a very bad idea to borrow to buy crypto, and for two main reasons,” said Sukhi Jutla, co-founder of MarketOrders, a London, UK-based business-to-business market platform for the precious metals industry. .
Reason 1: There is no protection for investors who buy crypto assets.
Reason 2: If you need to take out a loan to invest, it means you don’t have the financial bandwidth to sustain losses, which is a risky move.
“The best strategy with any investment is to use money you don’t need,” Jutla said. “Getting a loan for cryptocurrency investments goes against that strategy.”
Crypto is too speculative to borrow against
Other investment specialists point out that cryptocurrencies are a highly volatile, speculative digital asset class that should only be purchased with funds one is willing to lose.
“One should never borrow or use significant savings to invest, but rather invest when one is financially secure and can take risks with their capital, whether it be moderate risk in the stock market or speculative risk in cryptocurrencies,” said Eric Thompson. . , principal and wealth advisor at Round Table Wealth Management in Westfield, NJ “As we’ve seen over the last two years, some cryptocurrencies have done extremely well, while other seemingly reputable tokens have gone down to nothing.”
“In such a risky environment, taking out a loan to invest in cryptocurrencies is a terrible idea,” Thompson said.