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Is it feasible to take out a loan to buy cryptocurrencies? Influencer shares insights, Vitalik responds: Please do not take out loans to buy cryptocurrencies!

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Is it feasible to take out a loan to buy cryptocurrencies? Influencer shares insights, Vitalik responds: Please do not take out loans to buy cryptocurrencies!

In the era of low interest rates in the banking sector, you may receive phone calls from banks inquiring about credit loans every day. Upon calculation, the interest rates offered by banks, the anticipated price increase of cryptocurrencies, or the interest rates of financial products may seem profitable. Renowned podcaster Peter McCormack recently shared his "experience of taking out a loan to buy coins," but Vitalik seems to strongly advise against it.

Idea of Using Loans to Buy Cryptocurrency

Podcaster Peter McCormack revealed that he took out a $46,259 loan at a 7.9% interest rate to purchase 2.55 bitcoins. By 2026, he will need to repay the bank $57,806.85. Based on the current market price, Bitcoin would need to reach $22,669.35 for him to break even. He asked the community whether they think this is a good decision.

He even mentioned considering borrowing more money multiple times for the same purpose due to his bearish view on the Euro. When asked which bank he borrowed from, he declined to disclose, stating that he did not inform the bank about the actual use of the funds. Although he claimed it was not investment advice, it raised concerns from Ethereum co-founder Vitalik.

Vitalik Warns Against Using Loans to Buy Cryptocurrency

Vitalik retweeted the post and said, "Please don't do this. I would never recommend that someone take out a loan to buy Ether or any other Ethereum asset." He also mentioned that seven years ago, at the beginning of Ethereum, he sold half of his bitcoins to avoid bankruptcy in case Bitcoin went to zero, showing his risk considerations regarding cryptocurrency prices.

In response, Peter McCormack retorted that Vitalik was right, suggesting that loans should not be used to buy Ether, but rather Bitcoin.

High Risks of Credit Loans: Volatility, Scams, and Hacking

Looking at the credit loan interest rates from various banks in Taiwan, even though the initial months are calculated at an annual interest rate below 1%, after the promotional period, the annualized interest rate can exceed 14%, along with additional fees. Cryptocurrencies are highly volatile, and there is no guarantee that taking out a loan will result in profitable returns sufficient to repay the loan.

When considering simple holding, cryptocurrencies with larger market capitalization may pose lower risks, with buying price being a significant factor. What's most concerning is falling into schemes or scams, especially with smaller or unlisted cryptocurrencies, where the loaned funds may be lost.

Currently, there are centralized CeFi and decentralized DeFi financial products in the market. While the interest rates on crypto financial products may seem lucrative, no one can guarantee how long the high-interest conditions will last. Moreover, centralized platforms may suspend or close products due to the industry's high volatility. Additionally, DeFi is prone to hacking incidents and exploit arbitrage, making it challenging to ensure fund security, which is the last thing a borrower would want.

Lastly, the psychological resilience of the borrower is also a factor. In the long holding period, seeking to accelerate profit by using the loan on high-risk coins or products could lead to losses. Readers are advised to carefully evaluate cryptocurrency investments with a preparedness for possible losses.