Bitcoin and other cryptocurrencies have taken Wall Street by storm, promising incredible returns in a relatively short time. As a result, retail investors have piled into these cryptocurrencies, to the point of leveraging their own finances to get more skin in the game.
24/7 Wall St. has looked into a study by LendEDU, analyzing how investors are investing in cryptocurrencies and why this could be concerning.
LendEDU took a poll of 672 active bitcoin investors and found that about half (51.78%) of respondents have either used a credit card or debit card to fund their account to purchase bitcoin. Specifically, this breaks down to about 33.63% using debit cards and 18.15% using credit cards.
According to LendEDU:
Going into debt to buy Bitcoin is not a wise decision no matter which way it is spun. There is no guarantee that Bitcoin investment returns will be profitable in the long run, but one can guarantee that the credit card company will need to be paid back. Considering the average annual percentage rate (APR) on a credit card is 15.07%, a Bitcoin investor that finances their investment at the wrong time will find themselves in serious debt.
This is especially worrisome when the volatility of Bitcoin is taken into thought. Some of the world’s foremost financial minds predict the virtual currency could crash at some point. Heavily investing in Bitcoin via credit card only to have it crash overnight could lead to a nightmare financial scenario.
Something that really stands out in this poll is that 70.37% of respondents that carried over their credit card balance stated that owning bitcoin is worth the interest expense. Additionally, 88.89% of the same pool plan on paying off their credit card bill from money generated after selling their bitcoin investment.
It seems that bitcoin investors aren’t thinking about or even worrying about a crash in the cryptocurrency, much less the debt they take on to purchase it. This is concerning should something happen because there are no parachutes here. Not to mention, a fair number of market analysts are condemning bitcoin as straight up gambling.
Investors should be wary of their investments and consider the risk for each one. Although the returns that have been seen in bitcoin are appealing, there is no guarantee that this will continue or even hold at the current level.