Should I take out a bank loan to buy crypto?

By BrynnB | The Modern Crypto Man | 14 Sep 2020

This is the question I often find myself asking. As someone without thousands to invest into potential DeFi moonshots or undervalued gems, I (more often than not) consider approaching the big bag financial behemoths to potentially secure myself some funds to invest. Is it a genius move that could make me a millionaire in a month? Or is it insanity wrapped in a shiny package? As (un)appealing as these prospects may be, I've had quite a few considerations to mull over. These are my thoughts.

1. I will never take more than I can already afford to pay back

This is the most important consideration in my opinion. Without heeding to this, I am essentially a glorified gambler. When you are borrowing money that you are uncertain you will be able to pay back, I consider that a red flag. Building a family and a future, I am not in the position to be taking such dangerous risks. I will only ever consider a loan which has a repayment amount per month that I can absolutely afford. At present, that amount is not very high. Thus, right off the bat, my apprehensions towards taking out this loan begin to tingle.

Debt is already a very serious problem in my country. And it is an especial problem amongst the economic middle-class. I definitely do not intend on becoming another negative statistic - quite the opposite in fact, hence my interest in crypto and moonshots. Thus, as it stands, without proper long-term capital to invest through the use of a loan, it's not looking good.

2. The volatility essentially makes it a high risk coin toss

The crypto markets are some of the most volatile in all of economics. This is both a huge positive, but also a downside. Trading futures is an incredibly profitable opportunity, but also a ticket to "rek city" if one is too careless. Or even if one is just unlucky. Hence, if I look at it from my perspective (FYI I am not a crypto trader - just an enthusiast), the volatility is essentially a 50/50 return. Either I can buy a collection of crypto with my bank loan and make decent gains by playing the market correctly, or even just investing it with a basic brokerage, but at the same time I could lose significant amounts of my initial investment in just a week or two. For those who can read the market trends, it may be possible to earn your entire loan amount back in just a month or two and take that as profit. This, for an average Joe like myself, is statistically improbable to say the least. Should I toss the coin? I'm not so sure now...

Toss a coin to your crypto...


3. You could damage your credit record if there aren't returns

Credit scores may seem inconvenient to the high-roller BTC whale. But to a normal, working-class man like myself, my credit score can potentially save my family in a difficult situation. Without a decent score, I am unable to fund emergency loans should something unforeseen happen to myself or my partner (or our puppy). Thus, by taking this loan (ie. tossing the coin), if my investment flops and I am unable to repay the monthly amounts needed because my profits are non-existent, then my score will suffer. Big time. As previously mentioned in the first point, my country has a debt crisis. Many on average spend up to 60% of their income just on debt repayments. Sixty. Percent. That is just unrealistic. Why would I risk a dodgy future just for immediate gains? This is a long-term game in my opinion. I highly value Dollar-cost-averaging, and I currently do my best to stack as much as I can from my extra earnings and spare income. This will hopefully allow me to at least bring in a decent return in the future. But immediate profits are unfortunately not the focus of my portfolio. Thus, this bank loan option is starting to look less and less desirable as the risk/reward potential sits a bit too far ahead of me. 

4. A crypto-backed loan would be far safer

Finally, I'd like to mention a potential alternative to what I have posited in this article. Currently, crypto-backed loans are a huge hit. You can take a loan out using your crypto holdings as collateral. Of course, the amount of crypto required in comparison to the loan amount is over-collateralized. This means for every 1 BTC you have, on average your loan amount will be around 0.5 BTC worth in USDT or another stablecoin. This is done in order to protect the loan institution/party, should the price of BTC drop dramatically over a short period. Services like BlockFi or exchanges with a loan facility are my first option and recommendation, as they have been proven safe and trustworthy. There are many other alternatives out there, but be sure to do your research before giving your precious crypto to any organisation or individual. This cannot be stressed enough people! I may look into this model in the future, but there is unfortunately not enough crypto in my portfolio to warrant the necessity for a crypto loan viable enough to pay itself off. Sad times, I know.


Overall, I find it difficult to convince myself (in my current position) to take out a bank loan just to secure myself some crypto. Unless I aggressively trade the coins I buy, I doubt that I will make enough profit to cover the immediate cost of the loan per month. As disappointing as my findings may be, your situation may actually allow for this method of investing. Would you ever consider going forward with something like this? Have you perhaps done so in the past? I'd love to hear how it went in the comments below! 

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Some of my other articles: My Passive Crypto Income in 2020, Beware new crypto malwareDeFi FomoCrypto Debit Cards

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Young entrepreneur from South Africa, looking to become a blockchain developer.

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