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.
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’s home is being put up as collateral on loan.
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.
When Bitcoin (BTC) was trading at $57,000, MicroStrategy CEO Michael Saylor suggested investors should use all of their money to buy Bitcoin and “figure out how to borrow more money to buy Bitcoin.” At one point, Saylor suggests they should “go mortgage their house” to get more BTC.
Never forget Michael Saylor encouraging unsophisticated investors to liquidate every asset they own to buy Bitcoin on leverage.pic.twitter.com/Wvv3c2JpOZ
— Nate Anderson (@ClarityToast) June 13, 2022
At the time of writing, Bitcoin is changing hands near $23,000, meaning investors who followed Saylor’s 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.
While corporate lending differs from personal lending, it’s important to understand what may happen when investors borrow against their assets to buy more crypto and what’s in store for them.
Being prudent in a high-risk environment
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.
Speaking to Cointelegraph, Stefan Rust, CEO of inflation-tracking platform Truflation, noted it’s “definitely a high-risk strategy” that is “always an alternative” as it’s a “reasonable and cheap source of capital.” Rust added that if the house being mortgaged is paid off and there are “residual assets available to be able to take out a mortgage then why not…
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