Cryptocurrencies have been a popular investment for quite a while and it seems that every day, there are reports of people making money through investing in these currencies. With all the buzz about cryptocurrencies, you could be enticed to put as much money as you can and even make a large loan for this.
The truth is that using borrowed money to purchase crypto is a poor idea. This isn’t something any person should ever do.
The reason you shouldn’t use a loan to purchase cryptocurrency
It is a rule of thumb that using credit to purchase investments isn’t advised. You’ll be paying interest on your debt however, the value of your investment is only speculation. It is necessary to pay for the loan, regardless of whether the investment is performing poorly or earns your money. These payments could end up being a financial burden should you are able to suffer from loss on your investment.
The borrowing of money to purchase investments implies that your investment needs be performing extremely efficiently in order to earn a profit. It’s because you’d have to cover the cost of interest on loans with the returns from your investments so that you can break even before you can actually make into a profit. You could find yourself having to sell your investment in the wrong moment if you are unable to make payments. It could mean losing your money for good when you aren’t able to be patient and wait for your investment to recover from a slump.
This is the case with any borrowing method to invest, the dangers are increased when you’re using the loan to purchase cryptocurrency. This is because cryptocurrency investments can be more risky than other types of investments due to a couple of main reasons:
- The market for cryptocurrency is extremely unpredictable. There are huge fluctuations in the prices of digital currencies between the days. If you do not time your sales and purchases for precisely the right moment -that’s a challenge to achieve and is extremely difficult to do — you run the risk of losing cash. If you’re borrowing money and are under a deadline to earn profits so that you can pay back your loan, the likelihood of selling your product at the wrong time will go up.
- There’s a lack regulation of the cryptocurrency marketplace. The federal government is trying to find out how to regulate virtual currency. However investors are at risk of fraudsters. If you make a loan, and lose the funds because you were fraud, you’ll need to pay back the loan in full.
- The price of purchasing cryptocurrency can be separated from their true worth. Often, cryptocurrencies have prices that rise due to the tweets of celebrities or the craze on social media. If the value of virtual currency is driven up due to their status as the most popular meme stock or trend, the price may drop when people switch to the next trend. This also increases the risk of losing the funds borrowed.
If you’re looking to invest in crypto and have conducted your research including them in your portfolio could be a great idea. However, you should make sure to only invest in virtual currencies with funds you are able to afford losing. It is likely that you don’t have the money for borrow money only to lose it, therefore avoid purchasing crypto using money you’ve gotten through an personal loan.
OUR TOP CRYPTO PLAY ISN’T A TOKEN – HERE’S WHY
There’s a company we’ve identified that has strategically positioned itself as a long-term solution for picks-and-shovels for the larger cryptocurrency market — Bitcoin, Dogecoin, and the rest of them. You’ve likely made use of the company’s services within the past couple of days, even if you’ve never owned an account, or even known about the company previously. It’s just how common it is.