At the end of January, Binance announced that it was going to enable its clients to deposit into their accounts using credit cards. Many in the crypto world are praising Binance and other crypto exchanges for allowing people to deposit using credit cards, but the stark reality is that it sets a very dangerous precedent. Buying crypto with debit cards is one thing, but buying crypto with money that’s not yours in the first place could lead to huge problems for both lenders and traders.
Making Investments with Someone Else’s Money
When you buy something with a credit card, it’s not your money – you’re borrowing it from the bank. Now, most things purchased with credit cards can be repossessed by the bank – such as appliances, jewelry, furniture, and electronic devices. However, with crypto you’re essentially investing the bank’s money, hoping it will score you a huge return in order to pay off the debt and give you some extra money to play with. This is extremely dangerous, as if you start making losses, you’re likely to chase these losses and wind up in a huge financial hole. Only trade crypto with your own money is the message often relayed by those within trading circles, but credit card deposits allow individuals to take a different and much riskier route.
Has History Not Taught Us Anything?
During the crypto boom of 2017, people were taking out loans left, right, and center to get a slice of crypto action. While a number of these actually paid off and worked well, many traders were left high and dry, taking massive losses on their positions. One Emirati took out a $140,000 loan in December 2017 and lost more than 85% of it by August 2018 in the bear market. The markets have slid even further now, leaving this Emirati high and dry owing the bank thousands in monthly repayments.
Crypto Isn’t a Get Rich Quick Scheme
Many people think that if they buy a bunch of crypto tokens, in a few weeks they will be crazy rich – so they take on debt in order to give it a go. Very few people succeed, and crypto should be treated just like all other investments. Crypto markets are starting to lose their incredible volatility, making them rise and fall more evenly like stock markets. Taking out a loan as the price of crypto tokens starts to fall is foolish and will leave you with huge debt you will struggle to repay.
If you do purchase crypto on your credit card, make sure you pay it off as fast as possible and don’t just make minimum payments. The interest rate will quickly burn through any profits you make in trading if you leave the debt on their long enough, so wipe it out as fast as you can. Don’t forget to declare your crypto trading taxes as well, otherwise you could wind up with a huge tax bill on top of credit card debt – a situation nobody wants to be in.