{"id":480734,"date":"2022-08-03T16:03:00","date_gmt":"2022-08-03T13:03:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk\/"},"modified":"2022-08-03T16:03:00","modified_gmt":"2022-08-03T13:03:00","slug":"borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk\/","title":{"rendered":"# Borrowing to buy Bitcoin: Is it ever worth the risk?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a23fe60ebf31\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a23fe60ebf31\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk\/#%E2%80%9D_Borrowing_to_buy_Bitcoin_Is_it_ever_worth_the_risk_%E2%80%9C\" >&#8221; Borrowing to buy Bitcoin: Is it ever worth the risk?  &#8220;<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk\/#Being_prudent_in_a_high-risk_environment\" >Being prudent in a high-risk environment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk\/#Expect_the_unexpected\" >Expect the unexpected<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/buradabiliyorum.com\/en\/borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk\/#Reacting_to_levered_positions_gone_awry\" >Reacting to levered positions gone awry<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9D_Borrowing_to_buy_Bitcoin_Is_it_ever_worth_the_risk_%E2%80%9C\"><\/span>&#8221; Borrowing to buy Bitcoin: Is it ever worth the risk?  &#8220;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<p><img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjItMDgvZGU1NDU5YzYtMGU3MC00ZjVhLWE1MGQtMjJhNjNiZDRiYTZlLmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-28d77a7a>The cryptocurrency space is expected to reach 1 billion users in 2030. While some have been known to make a fortune off of it, others have ruined their finances, chasing similar results, going as far as getting credit to buy crypto by putting up valuable assets, including their homes, as collateral.<\/p>\n<p>Borrowing to invest can make sense under very specific conditions, but using a home equity loan is also extremely risky. For example, it means that an investor\u2019s home is being put up as collateral on loan.<\/p>\n<p>Cryptocurrencies have, in the past, delivered spectacular results to investors, but also saw them go through long drawn-out bear market periods in which many lost hope and sold at a loss, with those who managed to hodl on reaping the biggest rewards. As any analyst or financial adviser would say, past results are not indicative of future results.<\/p>\n<p>When Bitcoin (BTC) was trading at $57,000, MicroStrategy CEO Michael Saylor suggested investors should use all of their money to buy Bitcoin and \u201cfigure out how to borrow more money to buy Bitcoin.\u201d At one point, Saylor suggests they should \u201cgo mortgage their house\u201d to get more BTC.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">Never forget Michael Saylor encouraging unsophisticated investors to liquidate every asset they own to buy Bitcoin on leverage.<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/t.co\/Wvv3c2JpOZ\">pic.twitter.com\/Wvv3c2JpOZ<\/a><\/p>\n<p>\u2014 Nate Anderson (@ClarityToast) <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/ClarityToast\/status\/1536315025278763008?ref_src=twsrc%5Etfw\">June 13, 2022<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><br \/>\nAt the time of writing, Bitcoin is changing hands near $23,000, meaning investors who followed Saylor\u2019s words would now be deeply underwater. MicroStrategy has taken out loans from Silvergate Bank and raised capital by issuing debt to buy more Bitcoin, to the point that it now holds 129,698 BTC.<\/p>\n<p>While corporate lending differs from personal lending, it\u2019s important to understand what may h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>en when investors borrow against their assets to buy more crypto and what\u2019s in store for them.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Being_prudent_in_a_high-risk_environment\"><\/span>Being prudent in a high-risk environment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Mortgaging a home to buy cryptocurrencies has been a strategy employed by some investors, one that, if done at the right time, could lead to significant returns. However, it could have disastrous consequences if done at the wrong time.<\/p>\n<p>Speaking to Cointelegraph, Stefan Rust, CEO of inflation-tracking platform Truflation, noted it\u2019s \u201cdefinitely a high-risk strategy\u201d that is \u201calways an alternative\u201d as it\u2019s a \u201creasonable and cheap source of capital.\u201d Rust added that if the house being mortgaged is paid off and there are \u201cresidual assets available to be able to take out a mortgage then why not leverage that mortgage to buy Bitcoin.\u201d<\/p>\n<p>The CEO referenced fintech startup Milo, which offers 30-year crypto-mortgages and allows users to leverage their cryptocurrency holdings to purchase real estate as an option, and added:<\/p>\n<blockquote><p>\u201cI personally would not go all out and \u2018maximize\u2019 by putting all my earnings into Bitcoin. That\u2019s basically putting all your eggs in one basket. This is a super high risk allocation of capital.\u201d<\/p><\/blockquote>\n<p>Rust added that for investors with a family to take care of and bills to pay, mortgaging their property \u201cmight not be the most advisable strategy.\u201d Per his words, it\u2019s \u201ctypically best to deploy common sense and appropriate risk management.\u201d<\/p>\n<p><strong><em>Recent:\u00a0How blockchain <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a> can revolutionize international trade<\/em><\/strong><\/p>\n<p>Dion Guillaume, global head of PR and communications at crypto exchange Gate.io, expounded upon Rust\u2019s words, telling Cointelegraph that the \u201ceasiest way to ruin is to play with shitcoins and try to time the market\u201d and told investors to \u201cnever use excessive leverage\u201d and instead \u201creign in\u201d their greed.<\/p>\n<p>Guillaume said that investors must avoid falling for the hype, and while \u201cthis can be tough in crypto, discipline is key.\u201d Commenting on leveraging assets to buy more BTC, he advised caution instead of going all-in as Saylor suggested:<\/p>\n<blockquote><p>\u00a0\u201cWe need to be more prudent with the way we use our money. Despite all its greatness, crypto is still a high-risk asset. Are you a billionaire with seven houses? If yes, then you can probably mortgage one to buy BTC. If not, then be smarter.\u201d<\/p><\/blockquote>\n<p>Speaking to Cointelegraph, Dennis O\u2019Connell, chief technology officer and portfolio manager at crypto portfolio company Peregrine Digital, noted that borrowing to buy crypto is a \u201ctextbook case of what never to do with your finances,\u201d as a \u201chouse is a great investment over the long term and one of the primary ladders to grow wealth.\u201d<\/p>\n<p>O\u2019Connell added he has read \u201ctoo many articles of destroyed families or of people who have taken their lives tragically by doing this very thing.\u201d He added one should never take out loans or use leverage to invest in Bitcoin if they cannot afford to lose.<\/p>\n<p>Cryptocurrency markets are known to be extremely volatile and filled with significant ups and downs, where leading assets can nearly double in a month and bear markets can see BTC lose over 80% of its value.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Expect_the_unexpected\"><\/span>Expect the unexpected<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Because of the cryptocurrency space\u2019s inherent volatility, O\u2019Connell noted that investors need to take into account that Bitcoin is affected by monetary policy the same way other assets are and has \u201cproven not to be an inflation hedge\u201d while being highly correlated to other risk assets.<\/p>\n<p>The portfolio manager suggested investors need to expect the unexpected, especially when using leverage:<\/p>\n<blockquote><p>\u201cThey should expect the unexpected. Market cycles in crypto are highly volatile. Depending on their local regulations they can try and buy some protection through hedging perpetual futures (not yet legal in United States) to off their risk.\u201d<\/p><\/blockquote>\n<p>Per his words, the volatility in risk assets seen amid climbing interest rates make it difficult to \u201cjustify borrowing against any asset traditional or crypto and going to into Bitcoin.\u201d Addressing suggestions investors could borrow to buy crypto, O\u2019Connell said they must be \u201chighly skeptical and always question the motivation of the source\u201d telling them to borrow.<\/p>\n<p>He added the cryptocurrency space is known to be filled with scammers and is heavily influenced by investor sentiment, and as such, caution must be exercised.<\/p>\n<p>Thomas Perfumo, head of business operations and strategy at cryptocurrency exchange Kraken, told Cointelegraph that educational resources exist that \u201ceveryone should read\u201d before using leverage to buy any cryptocurrency.<\/p>\n<p>Perfumo noted that leverage is <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a>ly a tool used to maximize returns on capital and, in some cases, leverage it in a tax-efficient manner while also increasing the risk profile of transactions in which it\u2019s being used. This means it\u2019s \u201cimportant for anyone looking to employ leverage to understand their risk tolerance and manage their risk effectively.\u201d<\/p>\n<p>With any risk asset, Perfumo said, investors should never invest more than they are willing to lose, concluding:<\/p>\n<blockquote><p>\u201cWhen making important financial decisions, it is important for everyone to consider their personal risk tolerance and financial goals. We often recommend people consult with advisers to determine the most appropriate investment strategies.\u201d<\/p><\/blockquote>\n<p>These important financial decisions should likely also include the composition of investors\u2019 potential crypto portfolios and their role in their overall investment portfolio. To investors who put in more than they can afford to lose, crypto exposure may seem like a nightmare.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Reacting_to_levered_positions_gone_awry\"><\/span>Reacting to levered positions gone awry<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Guillaume stated that investors who have a leveraged position in the cryptocurrency space need to consider how much longer they can afford to maintain them, as given enough time, they can keep on holding onto it and hope for their \u201cfortunes to turn.\u201d<\/p>\n<p>Guillaume said leveraged traders should use a bull market to turn crypto into cash when they break even so they can pay off their debts and promise themselves they will never mortgage their house for crypto \u201cever again.\u201d<\/p>\n<p><strong><em>Recent:\u00a0What Kazakhstan\u2019s new tax regime means for the crypto mining industry<\/em><\/strong><\/p>\n<p>O\u2019Connell said that investors underwater on a leveraged position should \u201cshould im<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>tely seek the advice of licensed financial planner and expert to structure a plan.\u201d Mental health, he added, should not be set aside:<\/p>\n<blockquote><p>\u201cThey should also take care of their mental health and seek help from therapists or licensed mental health professionals. They should know there is professional support both financially and mentally.\u201d<\/p><\/blockquote>\n<p>At the end of the day, investors need to recognize that cryptocurrencies are risky assets based on technological innovations. Things can change overnight, as the collapse of the Terra ecosystem and subsequent contagion to other firms made clear.<\/p>\n<p>To stay safe, investors need to appropriately manage their risk, which may mean their portfolios will be \u201cboring\u201d for quite some time. However, this \u201cdowntime\u201d can give them the break they need to heal mentally and improve their outlook.<\/p>\n<p><template data-name=\"subscription_form\" data-type=\"crypto_biz\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/borrowing-to-buy-bitcoin-is-it-ever-worth-the-risk\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8221; Borrowing to buy Bitcoin: Is it ever worth the risk? &#8220; The cryptocurrency space is expected to reach 1 billion users in 2030. While some have been known to make a fortune off of it, others have ruined their finances, chasing similar results, going as far as getting credit to buy crypto by putting&#8230;<\/p>\n","protected":false},"author":1,"featured_media":480735,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjItMDgvZGU1NDU5YzYtMGU3MC00ZjVhLWE1MGQtMjJhNjNiZDRiYTZlLmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,74937,75238,74355,117,70610,73711,73808],"class_list":["post-480734","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-bitcoin-price","tag-financial-services","tag-adoption","tag-business","tag-finance","tag-investments","tag-loans"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/480734","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=480734"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/480734\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/480735"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=480734"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=480734"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=480734"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}