The price of Bitcoin has nearly doubled in price since early September, setting, earlier this month, a new record high above $19,900 after breaking the prior record high of 2017. Predictably, this news and the promise of easy money has made many buyers go insane.
But, while bullish investors are seeing fresh reasons to cheer for the No.1 cryptocurrency, Ethereum’s Co-founder, Vitalik Buterin said that taking on debt to buy Bitcoin or other digital currencies is a bad idea.
Please don't do things like this. I would NEVER recommend anyone take out a personal loan to buy ETH or other ethereum assets. pic.twitter.com/zCbbtUlvtQ
— vitalik.eth (@VitalikButerin) December 14, 2020
Another problem with going into debt for Cryptocurrencies is that people will have to pay back their personal loan plus the interest before they see sufficient returns.
The Russian-Canadian developer, who dropped out of university to focus on crypto full-time, added that some investors are taking dangerous risks to get into cryptocurrencies. But, the risky investment can leave people in even deeper financial trouble, as they end up unable to pay off their debts as the cryptocurrency only appreciates in value over the years, added Buterin.
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.
— vitalik.eth (@VitalikButerin) December 14, 2020
The misuse of personal loans with Bitcoin has some parallels to the crypto winter that followed the previous record when it hit three years ago. Around this time, many people not only transferred a portion of their investments in stocks but also had gone into credit card debt or taken out mortgages to invest in Bitcoin.
Things may be different this time as more institutional money has poured into Bitcoin, which should help the virtual asset mature.
However, the rise of cryptocurrencies in mainstream finance would not help retail investors when the next bubble bursts or bearish moves last for months as their assets will not be enough to cover the debt they owed.
