Crypto investors borrowing cash to buy currency
A study by the finance broker found that more than two thirds (64%) of those who have invested in cryptocurrencies used one or more credit facilities to do so.
KIS Finance warns that cryptocurrencies are ‘highly volatile and a risky way to invest large sums of money’.
Bitcoin, for example, has been in the news in recent weeks as it reached a value of more than $64,000 (£47,800). This would have undoubtedly brought in new investors as they try to take advantage of the price increase. However, in just seven days, the value dropped by more than $7,000 (£5,200) to a value of just over $56,000 (£41,800) per coin.
People aged between 18 and 24 were the age group most likely to use borrowed funds to make their crypto investment, with 70% of this age group borrowing to invest compared to 25% of those aged over 65.
KIS Finance found that more than a third (35.5%) of borrowers used a credit card to purchase cryptocurrencies, while almost a fifth (19.3%) funded the purchase out of their overdraft.
Holly Andrews, managing director at KIS Finance, said: “In recent years, cryptocurrencies have become far more mainstream with tech giant PayPal now offering a cryptocurrency trading platform.
“Although cryptos, and specifically Bitcoin, have seen people make thousands or even millions in profit; the last week or so has shown that they are incredibly volatile and can see investors losing massive percentages of what they put in very quickly.
“It’s concerning that so many people have turned to borrowed funds to purchase cryptocurrencies as they are extremely unpredictable and offer no guarantees that the money invested will be returned. So, if people are spending money that they don’t have, and losing it, this could cause some serious financial challenges later down the line.
“The biggest concern is whether people will have the ability to pay the money back. With a very strong possibility of losing the money for good, people may be left severely out of pocket and racking up interest on their credit cards and overdrafts. Also, some credit card providers will view this type of transaction as a cash advance, meaning a cash advance fee and higher interest rate will be applied.”