Is Taking On Debt to Purchase Bitcoin a Good Idea?
Bitcoin is a hot commodity. While few doubt the value of Bitcoin as a worthwhile investment opportunity, there are is a small population who feel investing in the cryptocurrency is worth taking on debt. A survey by LendEDU showed that 18.15% of Bitcoin purchasers used a credit card to do so.
But is it really a good idea to accumulate debt to invest in Bitcoin?
With any investment, the risk is part of the process. The higher the risk, typically the greater the reward. In Bitcoin’s case, however, leveraging debt doesn’t necessarily mean increasing your investment value.
There are pros and cons to using debt to invest in cryptocurrency. Each of these should be analyzed carefully before you move forward with an investment that could put your assets in jeopardy.
Here’s what you should know.
Debt for Bitcoin: Is it Worth it?
In many cases, individuals are using debt as a way to attempt to accrue assets in the form of Bitcoin and other cryptocurrencies. The viability of this strategy is debatable, however. As with any investment, risks can outweigh potential benefits. In Bitcoin’s case, the high levels of uncertainty lend to higher risk.
As a cryptocurrency, Bitcoin has been on the leading edge. The impact of Bitcoin on blockchain systems overall has created innovative, secure digital processes for payment and financial transactions. Meanwhile, the value of Bitcoin has risen substantially from its launch in 2009.
With an all-time high stock price of $19,665.39, Bitcoin has proven its value potential. However, Bitcoin is also subject to high volatility. The fluctuations in Bitcoin’s value mean investments in the cryptocurrency require good timing to score high returns.
Does this make Bitcoin an investment worth going into debt for? Let’s examine the pros and cons.
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Pros
The growing potential of crypto like Bitcoin can mean big returns for investors. With companies like 21Funds experiencing huge asset boosts due to successful crypto investment, the desirability of a decentralized currency can be extraordinarily tempting.
Bitcoin investments can generate the following positives, with the proper timing and strategies:
- Crypto revenues can help pay off debt without high interest rates.
- Bitcoin protects finances against economic collapses of fragile national currencies.
- Expenses of money transfers can be reduced with crypto like Bitcoin.
- Successful investment in Bitcoin can help pay off steep debts like student loans faster.
With the right investment, you can begin to make back revenues that could potentially offset the interest accrued by credit card debt or other loans. However, whether or not you see immediate returns is a big if.
For beginners looking to invest through crypto trading, starting with low-risk sums outside of debt is likely your best bet. No one knows exactly how crypto like Bitcoin will perform. Staking an investment in Bitcoin can be highly profitable, but be aware of the risks.
Cons
The cons of using debt to invest in crypto depend on the source of your debts. Credit cards are lower stakes. If you plan to invest in Bitcoin using equity in your home or mortgage refinancing loans, however, you may be playing with fire.
For many, the cons of investing in Bitcoin with debt may far outweigh the potential benefits. Interest rates on debt can be higher than the returns on crypto value any given day. No one has exact answers, so use caution and consider the following negatives that can come from bad Bitcoin investments:
- Potential losses to assets and equity through loan investment.
- Increased difficulty in making home payments, potentially leading to foreclosure and damaged credit that can be difficult to fix.
- Loss of funds needed to pay off credit cards, student loans, or other high-profile debts.
- Diminished returns over time, negating the point of investing entirely.
A report showed that as much as 21% of college students were using borrowed money to invest in cryptocurrencies. For an investment as volatile as Bitcoin has shown itself to be, this kind of investment is a gamble. It may speak to the state of Millennial and Gen Z prospects that uncertain investments seem a wiser choice than paying living expenses off student loan money, but, the risks of placing yourself in debt to acquire an uncertain investment are not ideal.
Hedging Your Bets: Making Worthwhile Investments
With the right trade mentality and the wisdom to pull out at the proper time, you can potentially grow your returns, leading you to pay off debts faster through Bitcoin investment. However, that is never a guarantee.
Investing in cryptocurrency like Bitcoin can definitely generate returns, but making a worthwhile investment requires an understanding of the volatility of the market. One of Warren Buffet’s three guiding investment principles is to invest in what you understand. Amateur investors are at higher risk of losing money in complicated investments whose technological processes they might not fully comprehend.
When it comes to purchasing Bitcoin with debt, hedge your bets. Be aware of all the risks, and don’t tie high-stakes assets like your home into the deal.
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