The crypto market has crashed significantly, with prices dropping so much that some have called the downturn a “crypto winter.” While the news is bad for crypto investors overall, it is particularly damaging for those who have taken out high-interest loans and put up collateral to fund their risky bets.
According to a recent survey published by DebtHammer – which tracked the investing habits of 1,500 Americans – 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, despite interest rates dropping. three digits,” the survey summary reads.
In the breakdown, this shows that 21% of crypto investors have taken out a loan to fund their investments; 11% used a payday loan between $500 and $1,000; 19% of the group said they had trouble paying a bill due to investing in crypto and 15% admitted they feared eviction.
Other results show that 35% of investors have used credit cards to pay for crypto investments; 5% of investors lost $100,000 or more; and 52% of those who used payday loans lost up to $1,000 investing.
Financial experts have warned against using payday loans in general. However, this advice should be amplified if taking one out to invest – especially in a volatile digital asset like crypto – experts say.
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John Hope Bryant is a serial entrepreneur and founder of Bryant Group Ventures, Promise Homes and Operation HOPE, the latter providing financial dignity and economic empowerment programs for low-to-middle income youth, individuals and families in the underserved communities.
“Never use expensive short-term debt to buy highly speculative long-term assets,” Bryant tweeted. “That said, 10% of crypto buyers timed buying with the expectation of ‘selling,’ with the next credit card bill. And 42% of payday loan users traded or spent crypto. change.
Dr. Merav Ozair, a blockchain expert and professor of financial technology at Rutgers Business School, echoed Bryant’s advice in an interview with DebtHammer.
“Never take out a loan to invest. Only invest the money you need,” Ozair told DebtHammer. “A lot of people think they can become millionaires in a day, which never happens.”
Ozair also told DebtHammer that prospective investors should never leverage an asset — like their home or car — in a speculative investment.
Dr. Leonard Kostovetsky, an assistant professor at Boston College’s Carroll School of Management, echoed other experts who warned against giving in to social media trends that advised people to “buy the dip ” in cryptography.
“It is an exceptionally risky and foolish idea to take out a loan to buy cryptocurrency,” Kostovetsky said. “Anyone who did 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 the Bitcoin cryptocurrency is displayed on a street in Hong Kong on February 17, 2022. Cryptocurrencies have suffered their worst fall since 2018. As prices fall, businesses crumble and skepticism soars , fortunes and jobs disappear overnight and investors are feverish. speculation has been replaced by icy calculation, in what industry leaders are calling a “crypto winter.” (AP Photo/Kin Cheung, File)