If you’re on planet Earth right now, the word Bitcoin isn’t something new to you. It’s the hottest topic around schools, workplaces, and dinner tables. More people are rushing into Bitcoin, most of whom know nothing about the technology behind Bitcoin, and others that can’t afford to invest but are doing so anyway.
Today, rather than focus on Blockchain technology and explain why Bitcoin and other digital currencies work, I want to focus on the group of people that are throwing money they don’t have into exchanges.
1) Don’t Invest With Your Credit Card
Unlike a normal stock exchange, some crypto-currency exchanges allow you to make a deposit using a credit card…and this is BAD NEWS!!
If you’re using a credit card to invest in crypto, you probably don’t understand much about investing, let alone the carrying cost of your investment. This was recently brought to my attention that this is happening, and quite frankly, it’s very scary. This is the type of thing that could cripple the world economy, and force so many people into bankruptcy.
Digital currencies are new, volatile, and untested! There is no long term history of investing. This is one of the most risky types of investments we have ever seen. If you’re not willing to throw away the money you’re investing, then please don’t invest!
And if you’re using your credit card to invest in Bitcoin and other Crypto-Currencies, you very likely can’t afford to throw that money away.
When I started hearing people tell me that they were using credit cards to invest in crypto, I felt that I had to educate and be a voice of reason. I had to get them to stop. So let me take a few sentences and try and explain this.
If you invest $1,000 in Bitcoin on your credit card, you don’t actually get $1,000 worth. The exchange takes a fee to process the transaction. It’s usually 3% to 5%. For our sake, let’s go with the lesser and say 3%. So when you invest $1,000 you only actually get $970. In fact, when the crypto goes up 3%, you’ve only broken even.
On top of that, you have interest on your credit card. For people investing using their credit card, let’s assume they have a high interest rate card, and carry a 25% per month credit card interest rate.
Since most of these “investors” are not cashing out their coins, and even if they do, they aren’t paying their credit card off, we need to add in the credit card expense. At $1,000 and 25%, this is $250 in the first month. So after 30 days, their $1,000 investment has now cost them $250 + $30 for a total of $280. If bitcoin went up 25% in 30 days, the “investor” would have lost 3%.
But then month 2 happens. And you have another 25% interest expense due on your card for borrowing that $1,000. Except that if you add the $1,000 plus last months interest of $250, you actually owe 25% on $1,250 this month, or $312.50 more in interest. So now, after 60 days, your $1,000 “investment” has cost you $250 + $30 + $312.50 for a total of $592.50!!!
So if Bitcoin went up 50% in 2 months, you would have lost $107.50!!
And then there is month 3. Where your interest compounds yet again. And you really need Bitcoin to triple in value to “make money”.
I keep hearing people who say they made “X” on Bitcoin investing. And then I find out they used their credit card and are carrying an interest expense. These people have no clue that they are very likely losing money. Money that if by some reason Bitcoin crashes, maybe because of futures investing, they still owe their credit card company. It’s very sad.
2)Don’t Mortgage Your House
What’s more sad than using your credit card s that I’ve now heard that roughly 4% of crypto investors are using their homes to buy in. That is, they are taking Home Equity Lines of Credit or refinancing to invest in crypto.
Again, please don’t do this!
If Bitcoin crashes, and I do believe we will see a large dip in 2018, these people could end up homeless! That’s a hell of a risk to take, one I couldn’t take, and one I certainly wouldn’t recommend.
Here’s the thing, people…
You should always understand what you are investing in before you ever invest. You have to do due diligence. And you also shouldn’t invest money you don’t have, or “mortgage your family’s future” on risky investments.
I really believe this could be the cause of the next collapse of our economy.
Futures are now being traded for Bitcoin. And the estimate is that 1,000 people own 40% of the Bitcoin in circulation. Either of these 2 stats tell us that a crash could come soon, as long as people want it to.
Let’s say you own a large hunk of Bitcoin. The price has skyrocketed and you’ve made a lot of money! And now, un-savvy “investors” have come in (and created a bubble). You know have the chance to short the stock, betting on the down, and winning if it does. You can profit by it going down. You can also create a massive sell off to ensure this happens. Bitcoin prices could drop dramatically. But you’re the seller, so you’re out! You win!
Who is left holding the losses? The investor that had know clue what he/she was doing. The price drops considerably, and they lose money they never really had. The best they can do is sell now at a massive loss to retain some of their money.
And who do they sell it to? The same guy that sold it to them. Only after he sold at the top and won big, he’s now buying back at the bottom and will win big again.
But that poor little investor that had no business investing is broke. He’s lost his money, he can’t pay his credit card, and the bankers are now coming after his home. This is happening to thousands and thousands of people, and it can cripple our economy.
If you’re not willing to literally set fire to the money you want to invest in Bitcoin, then you have no business investing in Bitcoin. You can’t lose what you don’t put in.