Cryptocurrencies have been a hot investment for a while now and it seems like there are stories every day of people getting rich by investing in them. With all of the hype surrounding cryptocurrencies, you might be tempted to invest as much in them as you can – and possibly even borrow a lot of money To do that.
However, the reality is that borrowing money to buy crypto is a really bad idea. It’s not something anyone should do.
One email a day could save you thousands
Tips and tricks from the experts delivered direct to your inbox that can help you save thousands of dollars. Register now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to us sending you money tips along with products and services that we think may interest you. You can unsubscribe at any time. Please read our Data protection and Terms & amp; conditions.
Why You Shouldn’t Borrow to Buy Crypto
Generally speaking, it is not advisable to take out loans to buy most investments. You agree to pay interest on a debt while the return on your investment is only speculative. You will need to make payments on your loan whether your investment is doing badly or making you money. And those payments can become a financial burden if you end up suffering from investment losses.
Borrowing to buy investments also means that your investment must do extremely well in order for you to make a profit. Because you would have to cover the interest costs of a loan with your investment income in order to break even before you actually make a profit. And you could be forced to sell an investment at an inopportune time if you are having trouble making payments. This can result in your losses being permanently secured if you don’t have time to wait for your investment to recover from a downturn.
While this is true of any type of borrowing that is to be invested, the risks are only increased when you borrow Buy cryptocurrency. That’s because crypto investments can be much more dangerous than many other types of investments for a number of important reasons:
- The cryptocurrency market is extremely volatile. The prices of digital currencies fluctuate enormously from one day to the next. If you don’t schedule your purchases and sales at exactly the right time – which is really difficult – there is a very high risk of losing money. If you take out a loan and have a deadline to make a profit so that you can pay back your loan, then the chances of having to sell at the wrong time increase greatly.
- There is a lack of regulation in the crypto market. The federal government is still trying to catch up and figure out how to do it effectively regulate virtual currencies. In the meantime, investors are vulnerable to scammers. If you take out a loan and end up losing the money because you were scammed, you still have to pay back the entire loan.
- The cost of buying cryptocurrencies can sometimes be separated from their underlying value. Cryptocurrencies often see a price increase due to Celebrity tweets or social media hype. If virtual currencies are going up in price because they become the newest meme stock, the price can go down as people move on to the next big thing. This further increases the risk of losing the funds borrowed.
If you want invest in cryptocurrencies and having done your research, adding some to your portfolio can be a good thing. However, you should only invest in virtual currencies with money that you can afford to lose. Chances are, you can’t afford to borrow money just to lose it, so avoid buying crypto with cash you get from a. have received private loan.