The crypto market has taken a sharp tumble, with prices falling so much that some have dubbed the downturn “crypto winter.” While the news is bad for crypto investors overall, it is particularly damaging to those who have taken out high-yield borrowing and posted collateral to fund their risky bets.
according to a current survey Published by DebtHammer — which followed 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 triple-digit interest rates,” reads the survey summary.
The breakdown shows that 21 percent of crypto investors have taken out a loan to fund their investments; 11 percent used a payday loan between $500 and $1,000; 19 percent of the group said they struggled to pay a bill because of the crypto investment, and 15 percent admitted they were worried about eviction.
Other results show that 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 generally warn against using payday loans. But that advice should be reinforced when ruling one out from investing — 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 of which provides financial dignity and economic empowerment programs to youth, individuals and low- to middle-income families in underserved communities.
“Never use short-term, expensive debt to buy long-term, highly speculative assets,” Bryant tweeted. “Nevertheless, 10% of crypto buyers have canceled the purchase and hoped to ‘sell’ on their 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 out a loan to invest. Only invest money you have left over,” Ozair told DebtHammer. “A lot of people think they can become a millionaire in a day, which never happens.”
Ozair also told DebtHammer that potential investors should never use an asset — like their home or car — for a speculative investment.
dr Leonard Kostovetsky, an assistant professor at Boston College’s Carroll School of Management, agreed with other experts who warned against giving in to social media trends advising people to “buy the dip” in crypto.
“It’s an exceptionally risky and stupid idea to take out a loan to buy cryptocurrency,” Kostovetsky said. “Anyone who has done so should immediately sell enough cryptocurrency to pay off their loan in full or risk defaulting on that loan in the future.”
PHOTO: An advertisement for the cryptocurrency Bitcoin is displayed on a street in Hong Kong on February 17, 2022. Cryptocurrencies have seen their worst collapse since 2018. As prices fall, businesses collapse and skepticism rises, fortunes and jobs vanish overnight, and investor feverish speculation has been replaced by frigid calculations in what industry leaders are calling “crypto winter.” (AP Photo/Kin Cheung, File)