The crypto market has tanked in a major way, with prices falling so much that some have dubbed the downturn a “crypto winter.” While the news is bad for crypto investors overall, it’s particularly damaging for those who took out high-interest loans and put up collateral to fund their risky bets.
According to a recent survey published by DebtHammer – which followed 1,500 Americans’ investing habits – a large minority of crypto investors have used loans to fund their investments.
“More than 32% of cryptocurrency investors have used a payday loan in the past, and 11% have used a payday loan or title loan to invest in cryptocurrency, in spite of triple-digit interest rates,” the survey summation states.
In the breakdown, it shows 21 percent of crypto investors took out a loan to fund their investments; 11 percent used a payday loan ranging between $500 and $1,000; 19 percent of the group said they have struggled to pay a bill due to the crypto investment and 15 percent admitted they were worried about eviction.
Other findings show 35 percent of investors used credit cards to pay for crypto investments; 5 percent of investors have lost $100,000 or more; and 52 percent of those who used payday loans lost up to $1,000 while investing.
Financial experts have cautioned against the use of payday loans in general. However, that advice should be magnified if one is taking one out to invest – particularly in a volatile digital asset like crypto – experts say.
John Hope Bryant is a serial entrepreneur and founder of Bryant Group Ventures, Promise Homes and Operation HOPE, the latter of which offers financial dignity & economic empowerment programs for low to moderate-income youth, individuals & families in underserved communities.
“Never use short-term expensive debt, to purchase a long-term, highly speculative assets,” Bryant tweeted. “That said, 10% of crypto purchasers timed purchase w/hoped for ‘sell,’ w/next credit card bill. And 42% of payday loan users have traded or spent cryptocurrency.”
Dr. Merav Ozair, a blockchain expert and fintech professor at Rutgers Business School, echoed Bryant’s advice in an interview with DebtHammer.
“Never take a loan to invest. Only invest money you have to spare,” Ozair told DebtHammer. “A lot of people think they can become a millionaire in a day, which never happens.”
Ozair also told DebtHammer potential investors should never leverage an asset — like their home or car — on a speculative investment.
Dr. Leonard Kostovetsky, an assistant professor at Boston College’s Carroll School of Management, echoed other experts who cautioned against giving in to social media trends that advised people to “buy the dip” in crypto.
“It is an exceptionally risky and foolish idea to take out a loan to purchase cryptocurrency,” Kostovetsky said. “Anyone who has done this should immediately sell enough cryptocurrency to repay their loan in full, or risk having to default on that loan in the future.”
PHOTO: An advertisement for Bitcoin cryptocurrency is displayed on a street in Hong Kong on Feb. 17, 2022. Cryptocurrencies have experienced their worst plunge since 2018. As prices drop, companies collapse and skepticism soars, fortunes and jobs are disappearing overnight, and investors’ feverish speculation has been replaced by icy calculation, in what industry leaders are referring to as a “crypto winter.” (AP Photo/Kin Cheung, File)
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