[2018-01-05] Report Reveals 18% of Investors Buy Bitcoin With Borrowed Money

[Terraformer]

Just recently the consumer group Lendedu released a report on bitcoin investors who use credit to purchase digital currencies. According to the survey, out of 672 active bitcoin investors polled, 18.15 percent of the participants used a credit card to fund bitcoin purchases.

Out of 672 Surveyed 18 Percent of Lendnedu’s Participants Use Credit Cards to Purchase Bitcoin

Last year’s consumer Nilson report detailed that the world’s outstanding credit card debt has accumulated to over $1 trillion and the debt continues to grow exponentially. With cryptocurrencies trending in popularity, it seems that many investors are purchasing bitcoin on borrowed money — credit cards and loans that bear interest. The consumer survey group, Lendedu, recently published a report that details that 18.15 percent of 672 bitcoin investors surveyed use credit to purchase their bitcoin.

“I used a credit card to fund and purchase,” explains the individuals in the survey who bought bitcoin in this manner.


22 Percent of the Borrowers Are Not Paying Off Their Debts

Lendedu believes the statistics are “quite concerning” as both combined debit and credit card purchases were used by more than half (51.78%) of the respondents. The reason the metrics are concerning the consumer group is because the size of the survey was relatively small compared to the millions of cryptocurrency investors. Furthermore, Lendedu revealed another metric which concerns them even more as the study states:

"This was not even the most pressing concern coming from the LendEDU poll. That recognition belongs to this data-point: 22.13 percent of Bitcoin investors did not pay off their credit card balance after purchasing Bitcoin."

Of the 672 investors, 77.87 percent said, “I paid off my credit card balance after purchasing Bitcoin,” while the other 22.13 percent explained, “I did not pay off my credit card balance after purchasing Bitcoin.” However, not all the investors purchased bitcoin on borrowed money, as over 18 percent used ACH transfers, 13 percent used bank wires, and the rest of the respondents used other means of buying bitcoin.

Respondents Say “I Believe Owning Bitcoin Is Worth the Interest Expense”

Lendedu explains the results of the poll shows quite a few investors are not worried about bitcoin’s price volatility, and are willing to gamble returns from bitcoin will pay off credit card debt. “I believe owning bitcoin is worth the interest expense,” revealed over 70 percent of the respondents who used credit cards and interest-bearing loans.

“Additionally, 88.89 percent of that same pool of investors plan on paying off their credit card bill from the money generated after selling their Bitcoin,” explains Lendedu.

The recent survey shows the trend of borrowing money to purchase bitcoin and other digital assets has been growing. Further, just recently news.Bitcoin.com reported on the U.S. securities regulator, Joseph Borg, detailing that many Americans are taking out mortgages to fund their bitcoin investments. Borg says credit cards and equity loans are being used quite often these days to bet big on bitcoin paying off all the investors debts.

Source and charts: https://news.bitcoin.com/report-reveals-18-of-investors-buy-bitcoin-with-borrowed-money/

[aso118]

Using a credit card is per se not a big problem, if you are buying small amounts of bitcoins and you are using it for convenience. Of course, if you don't pay off your credit card debts on time, then it is a big problem. This doesn't seem to be a problem, with less than 4% (22% of 18%) actually not paying their bills on time.

The bigger concern would be the gamblers - including those who take a mortgage to gamble on cryptocurrencies. At some point, when the market turns, these people will big a bad name to cryptocurrencies (unfairly).

[Xavofat]

Of course, if you don't pay off your credit card debts on time, then it is a big problem. This doesn't seem to be a problem, with less than 4% (22% of 18%) actually not paying their bills on time.

In the case of a price drop though, this amount is likely to increase massively.  After all, we're talking about paying off debts when your investment most likely increases in value (during a bull market).  IMO, this part is the most worrying:

Additionally, 88.89 percent of that same pool of investors plan on paying off their credit card bill from the money generated after selling their Bitcoin

It's definitely a huge risk when a bear market comes around.  As with most euphoric speculators, these sort of people will eventually get a slap in the face.

Still, I expect that credit card investors tend to invest a smaller amounts than people who use other payment methods, due to the high fees and low limits that most places have for credit card transactions.

[poor-yorik]

Of course, if you don't pay off your credit card debts on time, then it is a big problem. This doesn't seem to be a problem, with less than 4% (22% of 18%) actually not paying their bills on time.

In the case of a price drop though, this amount is likely to increase massively.  After all, we're talking about paying off debts when your investment most likely increases in value (during a bull market).  IMO, this part is the most worrying:

Additionally, 88.89 percent of that same pool of investors plan on paying off their credit card bill from the money generated after selling their Bitcoin

It's definitely a huge risk when a bear market comes around.  As with most euphoric speculators, these sort of people will eventually get a slap in the face.

That's kind of normal. If you buy bitcoins with borrowed money, you are expected to pay off the debt with the income you hope to earn with this investment. But it doesn't mean that you have no means to return the money if Bitcoin doesn't go your way. You may have other investments which you will have to liquidate in that case. Point being you shouldn't consider all these people irrational or out of their mind entirely.

[yojodojo21]

Actually, it is not the problem of the debtor using credit card because they benefited it the most, it's either they pay the full debt or they end up in jail. But, some other individuals use this kind of trick to make easy money and as long as bitcoin idea is widely spread to the entire world the brightness of money will be upon the eyes of human beings. It talks all about money bitcoin is money.

22 percent borrowers will surely go to jail if they will not be able to pay their credits. Investment is so risky, loaning money or lending money is not a good idea for business purpose.

[cryptoflip.it]

Actually, it is not the problem of the debtor using credit card because they benefited it the most, it's either they pay the full debt or they end up in jail. But, some other individuals use this kind of trick to make easy money and as long as bitcoin idea is widely spread to the entire world the brightness of money will be upon the eyes of human beings. It talks all about money bitcoin is money.

22 percent borrowers will surely go to jail if they will not be able to pay their credits. Investment is so risky, loaning money or lending money is not a good idea for business purpose.

Agreed, this could get out of hand pretty quick.

[cpfreeplz]

I've used a credit card to buy Bitcoin. I also pay off that same credit card every month because I don't want to pay interest. So it was more of a convenience and not because I'm actually buying and holding on credit. I'm not taking any extra risks because I'm not paying interest. That would be the only concern here.

[richardsNY]

Agreed, this could get out of hand pretty quick.

It's nothing really new. If we look at how things go at stock markets, then it more often than not is a frequent occurrence that people take out loans and mortgages to buy stocks and other financial tools. I have even seen economists and market 'experts' recommend people on TV to borrow money to invest in stocks, and even to get involved in leverage trading.... It's disgusting advice, but there are really dumb people actually doing so. If you invest with borrowed money, you'll more likely than not to end up with major financial problems, and especially so if you take a dive into leverage trading. It's asking for problems....

[Xavofat]

Of course, if you don't pay off your credit card debts on time, then it is a big problem. This doesn't seem to be a problem, with less than 4% (22% of 18%) actually not paying their bills on time.

In the case of a price drop though, this amount is likely to increase massively.  After all, we're talking about paying off debts when your investment most likely increases in value (during a bull market).  IMO, this part is the most worrying:

Additionally, 88.89 percent of that same pool of investors plan on paying off their credit card bill from the money generated after selling their Bitcoin

It's definitely a huge risk when a bear market comes around.  As with most euphoric speculators, these sort of people will eventually get a slap in the face.

You may have other investments which you will have to liquidate in that case. Point being you shouldn't consider all these people irrational or out of their mind entirely.

Fair point.  Still, they would be in a worse financial state if their Bitcoin investments were to decrease, and if it does decrease, it's likely to fall more dramatically than traditional investments.  That's why I think it's important to assume that you won't make money holding BTC to make sure that you're not investing more than you can afford to lose.

Also, if they're investing with a credit card (as I say, credit cards have high fees and low limits) they're much more likely to be amateur investors, so they're less likely to have this safe mentality.

But the general point that they're not necessarily irrational is reasonable.
 

[Gotottack]

I agree, we cannot therefore generalize. These people are presumably banking on a firm hope that they could profit in their undertakings in cryptocurrency should they loan money for it. Nonetheless, this move is rather risky because when cryptocurrencies' price declines, they directly suffer. For one, the value of their Bitcoins depreciates. Second, they would have to pay off their debts plus the corresponding interests that come with it. I am supposing, though, that they cannot be granted loans if they have no collateral to answer for possible nonpayment. Hence, it can be said they do have the means somehow, just that they want to increase their liquidity at such time.

[figmentofmyass]

Out of 672 Surveyed 18 Percent of Lendnedu’s Participants Use Credit Cards to Purchase Bitcoin

22 Percent of the Borrowers Are Not Paying Off Their Debts

these are some pretty misleading headlines and ledes. a more realistic perspective on the above is that ~ 4% of the surveyed bitcoin buyers bought with a credit card and didn't pay off the debt. 78% of those who used credit cards pay off the debt, and the vast majority of buyers don't use credit cards at all.

credit cards are one of the fastest (if not most expensive) methods to buy bitcoins. for some people, they are the only way to get them instantly. when you account for those paying their balances off, there are less people buying on credit than i would have thought!

[CyberKuro]

It's a risky decision to buy bitcoin or worse > buy altcoins using borrowed money.
How if you buy it at the peak? and the price will go down after you have invested?
Then, most people who have invested using borrowed money will fall into regret and anxiety.
I wouldn't recommend for everyone to trying such things unless you have a backup plan to cover your debt if something goes wrong such as bitcoin price falls for a month or maybe 2-3 months.

[BitHodler]

It's part of the game. Some people buy properties with borrowed money, some buy a car, others gold, and some use borrowed money to buy Bitcoin. I think it's safe to say that China can't be beaten in that aspect.

Chinese people have been known for doing so for quite some years now. Whether or not it's a wise decision in the end, that's due for another discussion, but regular people see it as a way of obtaining potential wealth.

Wealth that they in normal circumstances would likely never be able to build up with hard working. In order to obtain that wealth, they take incredible risks, but for a small number of people it will work out, and for other not.

That's just the way it goes. It's an on debt based economy we're living in, so we shouldn't be surprised.

[wilhb81]

It's good to invest on cryptocurrencies, but personally, I won't borrow money, either from my family, relatives, friends or even banks to invest in cryptocurrencies. Maybe, it's my own personal of view, but I think it's much better to use own money (at least, you'll not have any burden, if you loss all your money for the worst case)

[BigTeeths]

If this people are experts and know how bitcoin goes then I don't think this is a disadvantage. These people should borrowed more because you can't lose in bitcoin right now because only China can stop bitcoin but China just goes back to it.

[vit05]

I think this is not true. 22% is too much. Maybe 22% of americans that invest on Bitcoin. Because in other places is too
expensive to borrow money and it would be way more expensive to borrow money to buy Bitcoin.