The ongoing cryptocurrency craze has spawned an epidemic of impracticality, with increasing numbers of people desperate enough to get in on the crypto action to take dangerous levels of risk to feed their FOMO (fear of missing out).
While these people might try to justify their actions by pointing out that the greatest risk is the danger of doing nothing, their financial insouciance is likely to come back to bite them later. Get-rich-quick schemes and unwillingness to defer gratification are mostly a recipe for disaster.
Here's a rundown of the top 5 crazy (and dumbest) things to do when you want to buy yourself some bitcoin:
#1 Dipping into your student loan
More people than ever are struggling to pay off their student loans. A 2017 study by The Brooking Institution found that nearly six million of the 40 million American with student debts owe more than $50,000. Not only are these loans becoming bigger but repayment is slowing down as well.
It therefore comes as a real surprise that more than a fifth of college students have admitted to using their student loans to finance crypto purchases. These students risk defaulting on their repayments and facing penalties such as tax refund seizures, wage garnishments and a damaged credit score.
#2 Taking out personal loans
A Bloomberg report warns investors that borrowing money to speculate on bitcoin is likely to lead to the creation of bubbles, which in turn could hurt a lot of people when they eventually burst. Related: Bitcoin Struggles To Break Out Of Bear Territory
In fact, the only time it makes financial sense to borrow money for investment purposes is when the return on the investment is higher than the rate of interest and the investment risk is low.
Cryptos are not only some of the highest risk investments around, but also offer no guaranteed payback that's comparable to things like bonds or treasuries. Buying cryptos in order to HODL and sell later is a 100 percent speculation game.
It appears as if there's a lot of borrowed money going to finance crypto purchases, which might be the reason why bitcoin and its second-class crypto cousins have been going nowhere in 2018.
#3 Taking out a 2nd mortgage
As crazy as this might sound, some people are going as far as taking out a 2nd, or maybe even 3rd, mortgage and investing the proceeds in crypto.
This Redditor was at least honest enough to admit his folly, though he was incredibly lucky to have played Russian Roulette at a time when bitcoin was still relatively cheap.
This other Redditor, who took out a mortgage to buy bitcoin when it was approaching the all-time high of $20k, is probably still cursing his luck to this day. Let's just hope he doesn’t soon find himself living in a trailer park or, worse, nowhere at all.
#4 Selling your safe haven assets
Financial experts recommend holding about 5 percent of your investment portfolio in safe haven assets such as gold and silver. This helps to limit your losses in turbulent markets. With gold and silver prices remaining anemic over the past 12 months, the temptation to sell your safe haven assets and put the money into bitcoin can be quite strong. Related: Is Bitcoin Mining Still Profitable?
But it’s not a brilliant play. Gold has a time-honored history as a pretty reliable store of value that dates back five millennia. Bitcoin, on the other hand, can easily swing 20 percent-plus in a day, making it unsuitable even for use as money. If you must sell something to finance your crypto purchase, consider a garage sale and sell your unused possessions on sites like eBay, Etsy, Varagesale and Craigslist.
#5 Dipping into your retirement savings
Digital IRAs are a new class of retirement accounts designed to help people buy digital coins such as bitcoin and ethereum.
Although digital IRAs come with clear tax advantages, the wisdom of investing your retirement savings in something as volatile (and unproven) as bitcoin is questionable. Retirement assets should ideally be in instruments such as blue-chip stocks, bonds and other low-risk investments.
If you cannot resist the itch to gamble with your nest egg, limit your bitcoin investment to what you can comfortably afford to lose, whatever that might be.
By Michael Kern for Safehaven.com
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