Vitalik Buterin, the creator of Ethereum, the second-largest cryptocurrency in the world recently Tweeted out against using personal loans to buy more crypto.
Buterin said:
“Please don’t do things like this. I would NEVER recommend anyone take out a personal loan to buy ETH or other Ethereum assets,” Buterin added, “7 years ago, before Ethereum even began, I had only a few thousand dollars of net worth. I nevertheless sold half my bitcoin to make sure that I would not be broke if BTC went to zero.”
This news came just before Bitcoin hit its record highs later that week. Bitcoin hit the record books crossing the $23,000 mark for the first time in its 12-year history. It’s up 400% since its March 2020 lows.
Buterin has come a long way since having only $1,000 to his name. In 2018, Forbes estimated the Russian-Canadian developer’s net worth to be around $400 million to $500 million in crypto.
Bitcoin loans could blow up in your face
I searched the internet to see how hard it would be to get a Bitcoin loan. It only took me five minutes to get a quote.
This is very scary.
Bitcoin may be on a tear this year by growing thousands of dollars in value — BUT, it is one of the most volatile commodities on the market right now. The price could go from $23,000 back to $16,000 in a matter of hours.
That isn’t how a traditional asset works. Bitcoin is a gut-wrenching experience for me. Sometimes I can’t even bring myself to look at my portfolio.
If you take out a loan, you could ruin your entire life if Bitcoin takes an unforeseen dip. In a year where no one saw a pandemic happening, you just never know.
The millionaires who invested in Bitcoin will be fine. You or I will not if we take out a $50,000 loan.
It Didn’t Go Well For People Who Did It Last Time
In 2017, Bitcoin “mania” was everywhere. One investor describes opening up his email and finding this:
“Earn a Guaranteed $13,000 In Exactly 24 Hours!”
“Click here for bitcoin purchase!”
Everyone wanted in on the action. Including people who were broke.
“We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,” said Joseph Borg, president of the North American Securities Administrators Association told CNBC. His organization is devoted to investor protection.
“This is not something a guy who’s making $100,000 a year, who’s got a mortgage, and two kids in college ought to be invested in.”
Just a few years later the bubble burst. Bitcoin’s price dropped back down to around $5,000. Sure, if you held on you’d be doing great right now. But many fell for the price trap and didn’t hang on for the ride.
Just don’t do it
Use hard-earned cash to invest in Bitcoin. Get a side-hustle. Write more on Medium like what I’m trying to do.
There are many ways to make a little more money.
Remember: Investing shouldn’t be confused with betting. Financial literacy has, and always will be invaluable. Don’t ruin yourself financially by making one stupid move.