Should You Borrow Money to Invest in Bitcoin

(Last Updated On: February 15, 2018)

Bitcoin is the most famous cryptocurrency in the world, in addition to being the first decentralized digital currency that works without a ‘middleman’. Transactions involving this global payment system take place directly between users on a peer-to-peer basis, without the involvement of an independent central bank or single administrator.

Bitcoin’s popularity has also led to the birth of other virtual currencies that use digital encryption for transaction security and new unit creation. You can exchange digital cryptocurrency for products, services as well as other currencies, and they have also become a popular investment choice for people all over the world.

Bitcoin: Prices, Trends and Investing in Cryptocurrency

When Bitcoin first launched, it was worth under $1 per unit, but prices soared over the years to reach more than $17,000 per unit in December 2017. Recently, the price of Bitcoin dropped to under $7,500 per unit and other cryptocurrencies fell as well, but they are once again moving upward and giving investors hope. 

Too much hope, maybe? Enough to use a personal loan, credit card or other borrowed money to buy cryptocurrency?

There have been many cases globally of people taking out mortgages on their home or applying for loans with the sole intent of investing in Bitcoin and other virtual currencies. Like other gambles, this has worked out for some investors and caused others to lose money in addition to incurring extra debt.

Let’s look at a couple of scenarios to understand whether this is a good idea:

Scenario 1 – Watching the upward surge in cryptocurrency prices, a certain investor takes out a personal loan in January 2017 to buy eight Bitcoins when they are priced at around $900 each. In late November, this person sells just two units at almost $10,000 each and recovers not only the initial loan amount but also the interest on the loan. After all that, they still have a tidy sum of money left over in addition to half a dozen Bitcoins.

More examples of real-life Bitcoin investment scenarios here.

Scenario 2 – Another investor gets caught up in the cryptocurrency trend in October 2017, and buys two Bitcoins at just under $7,000 each by taking out a personal loan. Encouraged by the surge in prices over the next month, they take out another loan using their home as collateral and buy four more units at $10,000 each, but prices start dropping a few weeks later and continue to drop. They now have a loan and interest to pay back, along with the possibility of losing their home if they cannot pay back their debt.

Learn more about the effects of potential ‘loss’ scenarios here.

As you can see, investing in Bitcoin and other virtual money is a gamble, like many other investments. Success or failure depends on many factors, especially timing. If you’re confident in your ability to manage the risk and fully understand the risk only then give it a try.

Additional References:

  • https://en.wikipedia.org/wiki/Bitcoin
  • https://www.mirror.co.uk/tech/what-is-bitcoin-currency-crash-10409961
READ  10 tips to boost your retirement savings

Post A Reply