Major cryptocurrencies have been making headlines for most of 2020 as their values continue to soar and investors make millions. Because of this windfall, more people are considering investing in crypto in the hope that they will also rake in some of those profits. Although you might have the skill and know-how to make money trading in altcoins, you may not have the necessary capital to start your venture. With good credit or favor from friends or family, you can get a loan to start your venture. The question however remains, how good an idea is it to get a personal loan to buy crypto?

Taking on loans to invest

Taking on debt is a big decision and should never be done lightly without considering all the possible ramifications. Some industry big shots have been saying how they took out personal loans to purchase Bitcoin. This later made them millions but don’t say as much when they lose most of the money. For instance, in What Bitcoin Did podcaster Peter McCormack said that he turned $32,000 into $1.2M which later prompted him to take out a personal loan of $46,250 to buy 2.55 Bitcoin in the hopes that they will continue going up in value. This loan according to him will be paid in six years in the tune of more than $57,000 but should Bitcoin hit $22,669.35 he should make break-even.

Ethereum co-founder Vitalik Buterin however has come out very strongly against these sorts of loans. He has time and again cautioned his followers not to take out personal loans to buy ETH (ether) or their assets. He said that back in 2013 he sold half of his Bitcoin portfolio instead of taking out a loan when his business needed a cash infusion. The question, therefore, remains how financially responsible is it? Here are some of the pros and cons.

Advantages

  • Liquidity

Some of the more established cryptos such as BTC (Bitcoin) and ETH (Ether) are some of the most liquid investments in the world. This is because of the rise of exchanges in almost every corner of the world. This means that you can sell and buy these assets from the comfort of your home instantly and with incredibly low fees.

  • New opportunities

Trading in cryptocurrencies today is one of the most profitable jobs out there if you know what you are doing. Just like the forex markets, crypto traders have vast opportunities to make money with both new and old cryptocurrencies. Favorable pairs can make you a lot in profits than regular stocks and forex trades.

  • Low inflation risk

Since Bitcoin and other altcoins aren’t controlled by one single entity, then it becomes immune to inflation. Governments decide how much of their cash is in circulation at any given time thereby keeping tight control of the inflation which in turn has the power to affect other markets such as the price of oil and so forth.

Disadvantages

  • Volatility

Digital asset volatility is one of the main things that make them so special. The prices of all major cryptocurrencies are constantly on the move. On December 17, 2017, the price of Bitcoin stood at an even $20,000. A few weeks later, the most you could get for your Bitcoins was $7,051. This plummets in value cost people millions of dollars. Volatility can also become a blessing since the value of Bitcoin in early January of 2020 lay at about $9,500 but now it’s worth more than $20,000.

  • Regulation

Although many governments are trying to regulate the cryptocurrency industry, the speed of innovation has far surpassed that of regulations. In some countries, governments have been unable to regulate these digital currencies and have had to ban them altogether. Because of minimal regulation, you find that it’s not in its proper recourse in case of malpractice or fraud.