Borrow to buy Bitcoin?
Borrowing money to invest in Bitcoin? Think about it...
Stories of families taking out mortgages, loading up lines of credit, or racking up credit card debt to buy large sums of Bitcoin have been trending in the news lately. Earlier this year, there was a story of a family who sold everything they had, camped for the year, and invested in Bitcoin. Since then, they have made a fortune. But it's a pretty crazy thing to do. Yet, between the two options of borrowing to buy or selling everything to buy, you're probably better off selling everything to buy it.
And neither of those investment methods are very good options.
The reality is, nobody really knows how high - or low - cryptocurrency prices will go. Borrowing money from a bank or lending agency, as we all know, involves paying interest. Borrowing money to invest in Bitcoin makes you especially vulnerable to downswings in the market. What if you need to withdraw a little Bitcoin to make those payments, but the value of Bitcoin drops? What if interest rates go up and your loan payments are higher?
Instead of borrowing or selling everything, set aside an affordable amount to spend. This is different for every individual and family. Put aside an amount you are willing to lose that will not affect your lifestyle for the worse. Ideally, give up something to save the money, so it has a zero net effect on your budget. Going out for a lot of fast food? Scrap the fast food diet and put the money toward cryptocurrency instead. You'll be healthier too!
Maybe you are just an impulsive spender who buys little frivolous things just for the "fun" of buying stuff. Set that fun money aside for Bitcoin and you will instead be investing. I can assure you, watching the market fluctuate is at least as fun as buying trinkets at the mall.
So, instead of incurring debt to gain Bitcoin, make an effort to find areas in your budget where it will not affect you for the worse. Then, use a dollar-cost averaging method to invest. Essentially, this means paying into Bitcoin on a regular basis with a similar amount each time so as to avoid emotional buying and selling that can end up costing you more than it benefits you. For some people, this might be $25 a week. For others, it might be a couple hundred, and more for others. Determine an amount that is safe for you and stay within that limit.
*This is not professional trading advice - just my opinion!
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Sound advice. Never gamble what you cannot afford to lose!
Exactly. It is a risk. Thanks for the comment.
I would say that whilst it's not advisable, if you were to roll the dice, approach it as you would any crypto investment. You need to be able to service the loan even if your crypto balance somehow vanishes.
Overstretching yourself is incredibly dangerous even if you think the reward will be worth it
I agree the trickle investing method is better, unfortunately it multiplies the fiat to crypto costs. For example I have to pay £10 SEPA fee to get my money to a foreign account of my crypto exchange, so this adds quite a % unless its a decent chunk of money. Of course there are ATMs or LocalBitcoins but the rates arent great.
But those costs are lower than losing your home...
Yes it's true, in a bull market like this, it's better to put in the money in bigger chunks to save on some of the losses in fiat, but over time, I think it's better to spread it out to be less emotional and more logical about it.
Indeed, emotions are the real danger
Anyone borrowing money thinking they can invest in Bitcoin thinking it will appreciate is NOT understanding what Bitcoin is! Bitcoin is just digital currency and NOTHING more!
This is a FAD just like baseball cards and basketball cards, where people invested heavily thinking it will always appreciate then later finding it worthless in 10 years!
There are many other forms of digital currency that people can use when Bitcoin reaches it's peak! Once another digital currency is set in mainstream acceptance it will appreciate just like Bitcoin.
Bitcoin shouldn't be thought of as a commodity but just digital currency.