A large number of retail investors in the US have borrowed, often at exorbitant interest rates, to buy cryptocurrencies, and more than half of these investors have lost money, according to a recent study opinion poll by debt hammer.
DebtHammer surveyed more than 1,500 people across the US to learn more about their crypto investing habits and how it is affecting the already indebted nation.
Loans for crypto investments
According to the survey, over 21% of crypto investors said they used a loan to pay for their crypto investments.
Personal loans appear to be the most popular choice among investors, with over 15% of them saying they have used one to fund their crypto purchases. Many also used payday loans, title loans, mortgage refinancing, home equity loans, and even leftover student loans to acquire crypto.
About 1 in 10 investors who took out a payday loan used it to buy cryptocurrencies. Most borrowed between $500 and $1,000 to invest in crypto, the survey found. However, DebtHammer researchers found that despite the small amount borrowed, these were risky purchases since payday loans average around 400% APR.
Retail investors who have used loans to buy crypto said their purchases have not always been successful. Nearly 19% of respondents said they were struggling to pay at least one bill because of their crypto investments, while around 15% said they were worried about evictions, foreclosure, or car foreclosures. Payday loan users appeared to have suffered slightly less, with just 12% reporting having trouble paying a bill or worrying about evictions, foreclosures or garnishments.
Loans aren’t the only way for investors to buy cryptocurrencies when they’ve been short on cash.
According to the survey, more than 35% of respondents said they used a credit card to purchase crypto. While around 20% of them paid it off when the bill came due, 14% said they would pay it off in stages with either an introductory offer of 0% APR or at the full rate.
All of the borrowed money went to just a handful of cryptocurrencies. The survey found that more than half (54%) of respondents used the borrowed money to buy Bitcoin (BTC). Dogecoin (DOGE) took second place, with nearly 35% of respondents saying they bought the token using credit, while just under 30% said they bought Ethereum (ETH).
Just under 23% of those who borrowed money to buy cryptocurrencies said they did so because crypto prices have plummeted. About 15% said they see cryptocurrencies as a good long-term investment, while 17% said crypto prices are “historically low.”
A notable percentage of respondents (18.5%) said they borrowed money to buy cryptocurrency because they were offered a 0% promotional interest rate by their credit card company or bank.
However, not everyone who plays wins.
Of those who borrowed money to invest in cryptocurrencies, around 60% lost money. And while over 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 does not bring significant profits either. The majority, or 27%, only won up to $1,000, while only 7.5% won between $1,000 and $5,000.