A large number of retail investors in the US have taken out loans, often at exorbitant interest rates, to buy cryptocurrencies, and more than half of those investors ended up losing money, according to a recent study. poll by DebtHammer.
DebtHammer surveyed over 1,500 people in the US to learn about their cryptocurrency investment habits and how they affect the already indebted nation.
Loans for crypto investments
According to the survey, more than 21% of crypto investors said that they have used a loan to pay for their crypto investments.
Personal loans seem to be the most popular option among investors, with more than 15% of them saying they have used one to finance their cryptocurrency purchases. Many also used payday loans, title loans, mortgage refinances, home equity loans, and even leftover student loan funds to acquire cryptocurrencies.
Around 1 in 10 investors who used a payday loan used it to buy cryptocurrencies. Most borrowed between $500 and $1,000 to invest in cryptocurrencies, the survey showed. However, DebtHammer researchers noted that these were risky purchases despite the small amount borrowed, as payday loans average around 400% APR.
Retail investors who used loans to buy cryptocurrencies said that their purchases have not always been fruitful. Nearly 19% of respondents said they have had trouble paying at least one bill due to their crypto investments, while about 15% said they are concerned about eviction, foreclosure, or car repossession. Payday loan users seemed to have suffered slightly less, with just 12% reporting difficulty paying a bill or worrying about evictions, foreclosures or repossessions.
Loans aren’t the only way investors bought cryptocurrencies when they were short on cash.
According to the survey, more than 35% of the respondents said that they had used a credit card to buy cryptocurrencies. While about 20% of them paid it off when the bill was due, 14% said they were paying it off incrementally with an introductory 0% APR offer or full interest rate.
All of the borrowed money went into a handful of cryptocurrencies. The survey showed that more than half (54%) of the respondents used the borrowed money to buy Bitcoin (BTC). Dogecoin (DOGE) came in second, with almost 35% of respondents saying they bought the token with loans, while just under 30% said they bought Ethereum (ETH).
Just under 23% of those who borrowed money to buy crypto said they did so because crypto prices fell sharply. Roughly 15% said they considered crypto to be a good long-term investment, while 17% said crypto prices were “historically low.”
A notable percentage of respondents (18.5%) said they borrowed money to buy cryptocurrencies because their credit card company or bank offered them a promotional interest rate of 0%.
However, not everyone who bets wins.
Of those who borrowed money to invest in cryptocurrencies, around 60% lost money. And while more than a third of them lost $1,000 or less, 6% said they lost between $50,000 and $100,000, and 5.5% said they lost more than $100,000.
Investing in cryptocurrencies with borrowed money also does not translate into significant profits. The majority, or 27%, earned up to $1,000, while only 7.5% earned between $1,000 and $5,000.