New Data Shows 60% of UK Buyers Used Loans to Purchase Crypto

A study by KIS Finance has revealed that two out of three cryptocurrency investors borrowed money to make their purchase, rather than using income and/or savings.

Crypto is enduring a torrid bear market, seeing a dramatic fall in value to below $1 trillion, compared to its peak of almost $3 trillion only seven months ago. Worryingly, this will have left many facing huge losses, whilst still saddled with the cost of repaying their original borrowing, along with the added interest payments.

Massive crypto losses over the last few days

Cryptocurrencies are highly volatile and a risky investment strategy. There was a massive increase in crypto prices in November last year, with Bitcoin hitting its highest ever price. But since then, cryptos have been on a rapid decline.

The latest price crash appears to have been triggered by recent inflation data in the US, which saw a run of investors move out of risky crypto currencies into safer, more traditional investments. Alongside this, the news that crypto lending platform Celsius was stopping customers from withdrawing funds due to “extreme market conditions,” which contributed to Bitcoin losing 15% of its value in 24 hours.

Other leading crypto currencies have been hit with even larger losses, with Ethereum, Cardano, Solana and Dogecoin experiencing massive falls of between 15-25% in just 24 hours.

The huge hype over crypto investments creating billionaires has led to many people, particularly young adults, looking to make their own fortunes. However, these success stories can fail to highlight how much of a risk cryptocurrencies are as an investment product and the dangers of placing yourself in debt to fund your investment.

Has the cryptocurrency bubble burst?

If you invested in Bitcoin in February 2011 or Ethereum in 2016 when they were worth just $1 and sold now then you would be laughing.

An investment of £1,000 in Bitcoin in 2011 would now be worth over £20 million, even with the current huge falls in the market. But those that invested at the end of last year have now lost half of their investment, as it stands.

For those who have borrowed to make their initial purchase the risk is that they will now not only lose their investment, but will be left struggling to pay for the credit they used to purchase it in the first place.

The data KIS Finance also breaks down the percentage of crypto investors who used one or more credit facilities to fund purchase, by age

18 – 24: 70%
25 – 34: 64%
35 – 44: 68.9%
45 – 54: 62.5%
55 – 64: 45%
65+: 25%

The appeal of cryptocurrencies seems to be particularly strong with Generation Z (those currently under the age of 25), who are attracted by the decentralised nature of the market. But the fact that these markets are unregulated leaves investors with little protection.

There is also concern that this generation is more at risk from crypto influencers, with get rich quick stories that may encourage younger investors to borrow money in the hope of generating large returns.

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Holly Andrews, Managing Director at KIS Finance, comments on the findings: “In recent years, the cryptocurrency industry has grown rapidly and cryptos are becoming a more mainstream product every single day. Even tech giant PayPal has now introduced a cryptocurrency trading platform, making it accessible to everyone.

“If you are thinking of making an investment into cryptocurrencies, you should only invest an amount of money that you can afford to lose and it should be funded through income and/or savings rather than a credit facility.

“Borrowing money to invest in cryptos can become a very vicious cycle that’s difficult to break. Once you start losing money, it can be very tempting to invest more to make the money back; especially if you don’t have other means of repaying the funds.

Great care should be taken when you invest money anywhere, but especially when it’s something as volatile as cryptocurrencies. If you can, seek some professional financial advice first and never invest more than you can afford.

“Buying cryptocurrencies should also not be your only form of investment or savings as there is very little stability – spread your investments out and treat cryptocurrencies as a smaller, fun investment.”

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