Why it is sometimes possible to take out a bank loan to buy BTC

[Becassine]

I remember this thread in 2017 in the French part.

https://bitcointalk.org/index.php?topic=2425439.0

At the time OP wanted to borrow to buy BTC. As we know today, he would have made a great deal (plus, a rare thing at the time, his banker was OK to lend him the money).

Yet almost everyone advised him against it. Why was that?

It seems to me that all investments involve risk. What makes borrowing to invest in BTC any more risky than investing in a start-up, opening a business or buying a house (which may be full of defects, for example)? If the person's financial situation is stable and the banker, after studying the file in depth, is OK, I don't see why you can't borrow money to buy BTC. In fact, this is what some large companies do.

[Russlenat]

There is always a risk when borrowing money, especially if it's invested in high-risk assets like Bitcoin.
That's why I understand why some people might say it’s not a good idea.

Now, let’s consider the person  is able to borrow money at an interest rate of 1.5% per month. That adds up to 18% per year.

Let’s do the math:

If Bitcoin was priced at  more or less $20,000, (its ATH back in November 2017 or 2018) and we fast forward to November 2024 (7 years later), the total interest paid would be 126% over that period.

However, since Bitcoin has now increased to $100,000, that means it has grown by more than 400% from the original $20,000 investment. This results in a significant profit. That's nothing compared to a truly risky move. CZ even sold his house to invest in Bitcoin, and that’s insanely risky.

[Stepstowealth]

If the person's financial situation is stable,

This is the only condition which I think makes it reasonable for someone to take a loan to buy BTC because then there is the confidence that you can spread the payment over a period of time, but aside that, any individual without a sure source of income that takes a big loan to buy bitcoins can never ignore the price when it begins to drop below unexpected levels. That kind of person will panic, and may cause themselves some health challenges like High blood pressure because of it.

[BenCodie]

Debt for investment is not unusual. Just like with any loan, it needs to be well strategized. If you are confident enough to take a bank loan then it best not be after BTC has just rallied 100, 200, 300%+ and you are buying the top. There are points in time where this strategy would have worked, and the risk would have paid off...other times it would have been a disaster. It all depends on the loan terms, and when it's taken.

On another note, I have not heard of many banks allowing loans for the purpose of buying Bitcoin.

[Hazink]

Even for a startup business, I can't advise anyone to borrow up all the money and start a business with it; it's too risky. The interest rate is attached to the amount on one side, and the risk of the new business, which will definitely incur losses, will mean a startup paying off monthly or weekly debt from the same business will only drag the business down more.

Cases where I can only advise anyone to take a loan to invest in Bitcoin or any other investment are if they already have an alternative option to repay the loan back and the investment they made will appear to be the second choice, which, if there is not enough profit to cover that loan and interest from the investment, your first choice will come into play and save you from the drama.

[Becassine]

At the time, the banker agreed to lend the money, so OP certainly had a stable income and could repay the bank without any problems. He had probably already paid off his principal residence. History doesn't say whether he did or not in the end.

Why ask the question on a forum when those who answer don't have all the person's financial data?
Those who wisely put their savings in a regulated savings account have seen their savings melt away because of inflation...

[uneng]

When you borrow money to start a business, you have a good notion of how much you are going to profit in a monthly basis, since you made a business. Therefore, you have more control over the situation, knowing how long it's going to take to pay the loan back, what is a must when borrowing money.

On the other hand, when you borow money to buy BTC, you have no clue on how long it's going to take until you make profit. You have no way to calculate how much Bitcoin will price in the following month, besides the constant risk of facing losses on your investment.

As consequence, debt starts accumulating and to not make things worse yet, you may feel pressured to give up on your BTC investment, selling it at loss, just to pay the loan back partially. It's definitely a bad idea.

[Hazink]

At the time, the banker agreed to lend the money, so OP certainly had a stable income and could repay the bank without any problems. He had probably already paid off his principal residence. History doesn't say whether he did or not in the end.

Just like my comment above, in a case where the OP already has a stable source of income and wants to invest in Bitcoin but doesn't have access to the kind of money he wants to invest in it, it's okay to take a loan as long as the loan repayment can be covered up through the OP's earnings and the repayment plan is not upon the unseen profit which is expected from Bitcoin. In cases like that, I can advise it, and the risk level is reduced to the minimal. It's just like using the money you will make in the future to invest in something today as you consider it an opportunity which you need to take advantage of.

[Davidvictorson]

If the person's financial situation is stable and the banker, after studying the file in depth, is OK, I don't see why you can't borrow money to buy BTC. In fact, this is what some large companies do.

I agree but a person with a stable financial situation shouldn't borrow to invest in an unstable asset because the risk involves means that they may now go into debt if the market crashes. But I know that there are people who like to take risk and are ready to deal with whatever comes.

[Becassine]

When you borrow money to start a business, you have a good notion of how much you are going to profit in a monthly basis, since you made a business. Therefore, you have more control over the situation, knowing how long it's going to take to pay the loan back, what is a must when borrowing money.

On the other hand, when you borow money to buy BTC, you have no clue on how long it's going to take until you make profit. You have no way to calculate how much Bitcoin will price in the following month, besides the constant risk of facing losses on your investment.

As consequence, debt starts accumulating and to not make things worse yet, you may feel pressured to give up on your BTC investment, selling it at loss, just to pay the loan back partially. It's definitely a bad idea.

I completely disagree. You can have the best business plan ever, but then a competitor appears out of nowhere and undercuts you, you suddenly have health problems, you're having trouble recruiting, there's a worldwide pandemic, new legislation prohibits you from doing business... You can't have total control over the evolution of your business.

When it comes to bitcoin, the banker will scrutinize your financial status. The borrower will be able to repay the loan thanks to his income. What's more, the loan here was only for 5 years, so if the borrower is highly qualified, he'll be able to find another job quickly, even if he gets laid off. So he won't be under any pressure to resell his btc in panic and make a potential loss.

[landheer]

Even for a startup business, I can't advise anyone to borrow up all the money and start a business with it; it's too risky. The interest rate is attached to the amount on one side, and the risk of the new business, which will definitely incur losses, will mean a startup paying off monthly or weekly debt from the same business will only drag the business down more.

Cases where I can only advise anyone to take a loan to invest in Bitcoin or any other investment are if they already have an alternative option to repay the loan back and the investment they made will appear to be the second choice, which, if there is not enough profit to cover that loan and interest from the investment, your first choice will come into play and save you from the drama.

decisions do need to be taken in starting a start-up business, whether it will run smoothly or not, it is necessary to think in that direction by estimating the process that occurs, before taking a loan it would be better to look in a broader direction, of course by taking a loan to invest in bitcoin it is something that can be profitable but before borrowing it would be better if we see the future prospects are good or not.

[X-ray]

It's just the interests is going against the borrower's favour in term of investing in bitcoin with a loan.

If you can finance it, then good, if you have stable source of income to pay the debt, even better. but the risk is definitely big there, although I agree, when we got an asset that grow linearly like bitcoin. the best thing to do is to invest as early as possible.

Honestly, I think the stance on against borrowing to invest in bitcoin has changed after bitcoin become more legitimate than ever, people starts normalizing borrowing for investing these days already.

[Darker45]

I think it's probably because it's too much of a risk, at least from their point of view. Other factors probably played a role as well why people discouraged him/her. The loan amount, for example, wasn't a small amount, wasn't an amount ordinary people can afford to lose. It was €50,000.

Perhaps it was also a factor that he/she asked opinions precisely when Bitcoin was in the middle of a bull run, making new ATH after another. Investing huge in Bitcoin at a time when it's at the top doesn't seem wise.

Also, opinions could have been a lot different had they been told of his/her financial capacity. Many would have agreed and advised him to go ahead had they been told that his/her worth was €800,000 or a million.

I think the responses simply reflected the risk-tolerance of those who replied. Other than the fact that the Bitcoin market is uncertain, risky, volatile, unpredictable, new and untested, and whatnot, people are usually cautious when it comes to risking their hard-earned money.

[Despairo]

Large companies have multiple source of incomes, while individuals doesn't.

Even the individuals do have multiple source of incomes, but the incomes are small.

The banks willing to lend because you're either have good collateral or high income, so you're either lose your asset or work for many years in order to pay off your debt.

I agree there's nothing different if you take a loan to invest in Bitcoin, start up, business, or real estate, that's why I advise to not take a loan for everything I mentioned before except you have a gambling mindset.

[Wexnident]

~

You only think it's a great deal because it's already a done deal. It's only in hindsight. It's never realistically good to borrow money to invest on something like a stock or crypto BUT if it was for something like what you said OP like a business, then whole different thing. Why? Well you're in control. You can't exactly say when Bitcoin would grow (and no, the example again doesn't apply because it's only in hindsight) and compare that to a business or startup where you control everything, manage everything and SEE exactly what affects which to grow your money, large difference.

Also its dumb to compare a big company to a single person. Idk what would make you think a single lonesome person could actually compare to a large company in terms of possible means of income. The company itself already has a value as well, compared to single person who's still trying to get their credit score up lol.

[DanWalker]

I completely disagree. You can have the best business plan ever, but then a competitor appears out of nowhere and undercuts you, you suddenly have health problems, you're having trouble recruiting, there's a worldwide pandemic, new legislation prohibits you from doing business... You can't have total control over the evolution of your business.

Everything has its own risks but in business, if you prepare a complete plan, you will be able to limit those risks as well as be able to handle or fix if problems are detected in time. But when investing in bitcoin, there is nothing else you can do if bitcoin crashes, the only thing you can do is pray that nothing bad happens to you. You are completely passive and that makes it much riskier than business.

When it comes to bitcoin, the banker will scrutinize your financial status. The borrower will be able to repay the loan thanks to his income. What's more, the loan here was only for 5 years, so if the borrower is highly qualified, he'll be able to find another job quickly, even if he gets laid off. So he won't be under any pressure to resell his btc in panic and make a potential loss.

Banks only lend you money if you have reliable collateral, they don't care what you use the money for or whether you can repay the loan. If you can't pay your debt, they will seize your property and that's it.

So if you want to borrow money to invest in bitcoin, it is your decision but this is very risky because bitcoin is very unpredictable so don't give this advice to others.

[Hewlet]

It seems to me that all investments involve risk. What makes borrowing to invest in BTC any more risky than investing in a start-up, opening a business or buying a house (which may be full of defects, for example)? If the person's financial situation is stable and the banker, after studying the file in depth, is OK, I don't see why you can't borrow money to buy BTC. In fact, this is what some large companies do.

Even as a start-up, borrowing money puts you at a discomforting end whereby you are seriously pressured first off to raise back the amount borrowed as soon as possible, which can make you make some bad business decisions. the uncertainty of the future of Bitcoin is one of the reasons it does not look right to borrow money either from the bank or a person just for the sake of buying Bitcoin. You have to first of all consider that depending on the market condition, you might be holding your Bitcoin for four years or so, and then for that period, you will be expected to pay interest for the loan collected, which will still place you at a tight disadvantage. With the ability to do DCA, it does not look necessary anymore to buy or invest in Bitcoin with borrowed money.

[mamesso]

The most fundamental reason for his taking the risk was because his financial condition was stable. During the installment + interest payment period, there are no obstacles whatsoever, this action is very reasonable because it does not interfere with investment objectives.
Passive income sources play an important role when taking out loans to invest in Bitcoin, even if the asset value decreases at any time, you don't have to worry too much about thinking about installments.

[TheUltraElite]

It is a risky move, but a logical one because we assume that bitcoin will go up in the coming years and so we take loan to buy that bitcoin using fiat, knowing fiat will not rise against bitcoin or in other words, bitcoin will not drop in front of fiat during the same period of time.

Although I dont suggest it to everybody because bitcoin can drop at anytime without any reason, in the long term this is considerably safer.

Only do this if you have a backup amount ready to pay the loan back. Obviously banks will not allow this type of loans but P2P lenders will.

[Charles-Tim]

It seems to me that all investments involve risk. What makes borrowing to invest in BTC any more risky than investing in a start-up, opening a business or buying a house (which may be full of defects, for example)? If the person's financial situation is stable and the banker, after studying the file in depth, is OK, I don't see why you can't borrow money to buy BTC. In fact, this is what some large companies do.

If the person is working and receiving salary or wages and being able to pay back at the time requested, that is not bad at all. But some people will just borrow money and not having an alternative to pay the money is the stupidity part of it. People should against those that will not be able to pay back the money.