A interesting study was published in late January 2022. This report reviewed the state of consumer banking and payment practices and how these behaviors may have changed in light of the COVID-19 pandemic. This study was published by advise tomorrowa self-proclaimed decision intelligence company.
I think this report might be worth unpacking further at some point. It includes an insight into general consumer banking, trends and a particular focus on millennial finance that is certainly worth discussing. For today, however, I want to talk about cryptocurrency holders and their tendency to exploit dangerous debt practices, likely in an effort to acquire more crypto.
In this study, Morning Consult analyzed the habits of cryptocurrency owners and compared these results to investors who avoided these assets. The study found that cryptocurrency investors are much more likely to use questionable financial services than their peers.
The idea of cryptocurrency holders abusing debt to raise more crypto is perhaps unsurprising. Reports from busy bitcoin traders wild leverage ratios are nothing new, although the practice is well known dangerous. But the actual numbers, and the type of debt crypto owners might choose to participate in, I find terrifying.
Let’s start with a more harmless tidbit. The report shows that crypto owners were far more likely digital banks. Only a third of all US adults reported using digital banking, compared to two-thirds of cryptocurrency holders.
Not surprising. Logically, given the nature of cryptocurrencies and DeFi in particular, crypto owners should feel more comfortable with online-only financial providers. It’s a digital currency, so interacting with digital banks seems like a logical first step. Go on.
However, the report went on to say that cryptocurrency holders tended to keep more credit cards than the average US adult. 63 percent of crypto owners reported having 2 or more credit card providers, with a third of all crypto owners having 3 or more. Only 41 percent of all US adults said they had two or more card providers as of December last year.
As a reminder, the average credit card Debt in 2021 was about $5,600 2 out of 5 Americans who carry card balances month-to-month. Perhaps the emergence of so-called “Crypto Credit Cards” play at this increase compared to non-HODLers. Alarming numbers to play with, but we’re not done here.
Of all US adults surveyed in this report, only seven percent had taken out a payday loan or advance from a lender outside of a bank or credit union. Let me remind everyone that payday loans are predatory. So much so that consumer advocates regularly form groups issue advice warnings about them. Even seven percent is too high a percentage.
The aim of this type of loan is not for borrowers pay them off. Payday lenders count on borrowers borrow money all the time due to fees, interest and loan periods. Borrowers tend to be short of cash before each payday, and there are few ways to turn to help pay the bills other than back to the lender Another robbery loan.
Despite this, cryptocurrency holders are two and a half times more likely to use payday loans or advances. Eighteen percent of crypto holders surveyed said they had used this type of pirated lending in December last year, versus seven percent of all U.S. adults. That’s almost every fifth HODL’er.
Same goes for auto title loans, yet another potentially predatory corporate practice. Of 2,200 American adults, only 6 percent said they took out a title loan in December. However, among crypto owners, this number is increasing. Around 17 percent of crypto holders surveyed said they took out an auto title loan in the past year, nearly triple the average rate for adults.
These habits roughly paint an ugly picture 27 million Americans own the cryptocurrency. HODL’ers are more likely to have multiple credit cards, are more than twice as likely to use payday loans, and nearly three times as likely to borrow against a sharply depreciating asset — a car — just to fund their crypto habits.
As an asset class, cryptocurrencies are still here painfully new. Nobody can give you a long-term forecast for crypto because it just doesn’t exist. Stock market records spanning hundreds of years exist for trends, patterns, and best practices. For crypto only about a decade.
An easy metric to use is this: If you can’t afford crypto without borrowing money to buy it, then you can’t afford crypto right now.
And that’s okay. Everyone has to start somewhere. Build up some extra cash where you can and start getting rid of your debt. Set up an emergency fund to avoid debt in the future and support your financial position.
Something crazy happens when you have very little debt that needs to be paid back. You have nothing have to to spend your money Then you can spend your money on what you want want.
Crypto is big right now. I get it. It’s really big and everyone’s talking about it. This year’s Super Bowl was jokingly referred to not for nothing as Crypto Bowl. Today more money flows into this industry than ever before.
Mainstream acceptance seems to be a matter of when, not if. But that doesn’t mean we have to go after it blindly.