Should You Take Out a Loan to Buy Bitcoin?
Last week, Bitcoin holders everywhere were ecstatic when the crypto passed the $100K mark per token. But their joy came at the cost of sadness for some people who had closed their positions on the speculative currency.
Some of these people were, in fact, business entities who are now taking on debt to buy more crypto—but the question is, should you do the same? Keep reading to learn more about whether or not you should take out a loan to purchase Bitcoin.
Should You Get a Loan to Buy Crypto?
Will the recent wins of cryptocurrency, it may seem natural to consider taking out a loan so you can invest. But we will tell you right now that this is a bad idea. Cryptocurrency, even during the bull market, is highly speculative, meaning you should never invest money that you can’t afford to lose.
Look at it this way: pretend you take out a loan of $1000 and use it to buy BTC on December 17th, 2024, at 9 pm. This would get you about 0.0097 BTC(MP of BTC $104,000), not counting any taxes or fees.
Tomorrow, if BTC rises to $108,000 (which is highly likely), your $1000 of BTC would be worth $1,047.60—meaning you made $47. While this would be great, and you could cash out your investment and take that $47 to the bank, we doubt it would be worth it to get there. Why, you ask?
Well, first and foremost, you will have to pay interest on any loan you take, and this interest typically needs to be paid monthly or even weekly, depending on the load you get. This means you will need to pull money out of your own pocket to maintain the loan. Not only that, but we doubt anyone will be giving you a 30-year loan of $1000. Rather, the loan will likely need to be repaid in 6 months or less. Unfortunately, Bitcoin truly is the long game and we are fairly certain you will pay more in interest and fees than is worth it for 6-month investment returns.
Not only that, but Bitcoin could also decline in price at any time and even crash entirely (though we find that unlikely), meaning you could be left with a high-interest loan and no money to pay it. Therefore, instead of taking out a loan to buy crypto, we recommend only investing any extra cash you have lying around that you can afford to lose.
Why Are Companies Taking on Debt to Buy Bitcoin?
You have likely seen the news that Michael Saylor, CEO of MicroStrategy, is taking on debt to buy cryptocurrency (specifically Bitcoin), but you are missing the bigger picture here.
First and foremost, MicroStrategy began buying BTC in 2020, meaning they already had quite large holdings and have most certainly already seen returns. Not only that, but the debt they are taking on to buy Bitcoin now, in 2024, is in bonds—meaning when there is a return, it will be shared with the purchasers of the bonds (whether they are shareholders or the company itself).
If you are thinking that this is still dangerous for the company—you aren’t wrong. In fact, many professionals have cringed at MicroStrategy’s plan due to the fact that a sudden and steep decline in price could cause the company to amass a large amount of debt that the shareholders would need to be diluted in order to accommodate.
Of course, it’s likely that MicroStrategy has already made some returns that it could use to soften the blow, but again, if BTC declines, it is likely that these will evaporate as well.
Basically, it’s a risky investing strategy, and we don’t recommend replicating it with your business.
How to Get Money to Buy Bitcoin
Even though we don’t recommend getting a loan to buy Bitcoin, we still think it is worthwhile to invest. But if you are living paycheck to paycheck, how can you get money to invest without taking out a loan? Not to worry, we have some ideas.
1. Use a Small Amount of Savings
This first suggestion may or may not apply, but if you happen to put money into savings each money (say $100-$400), it might be a good idea to siphon some of this off for buying Bitcoin. While you certainly don’t want to put all of it into BTC (you still need some savings!), taking $50-$100 (roughly 25%) of what you typically save and putting it into BTC could be a good idea.
The diversifying method is a bit slow and not good for those who are impatient, but it does work, and someday, you will wake up with quite the BTC holdings.
2. Find a Side Gig
Obviously, there are obviously those who are barely saving as is and can’t afford to siphon any of it off for BTC. In this case, we recommend finding a side gig to help you get a few dollars to use to buy Bitcoin. No, we aren’t telling you to get a part-time job, which will increase your tax obligations and take away a lot of time (unless you need one). Rather, we are saying find something to do 1-2 days a week that could bring in as little as an extra $50 per month.
This could be anything from watching your neighbor’s dog one weekend a month to selling your old clothes on a website like Poshmark. Basically, find something low-effort that isn’t taxed, which will net you $50-$100 per month, and put this into BTC.
Like the method above, this isn’t quick, but it is a way to invest money you can afford to lose.
3. Cut Repetitive Costs
The last thing we suggest, which we suggest for everyone whether or not you want to buy BTC, is to cut repetitive costs. You likely subscribe to several streaming services that you barely watch. You also might still have a subscription to an online website you never use.
Cut these costs, by going down to just one streaming service (or none) and canceling any subscriptions you don’t use. Instead, funnel this money into BTC, buying a small bit each month and watching your money grow.
Overall, no matter what method you choose, you’ll be able to invest a small amount of money into BTC. Just remember that Bitcoin is very volatile, and you could lose everything, so ensure you approach it with the mindset of only investing money you can do without.
