What if you had borrowed FIATs to buy bitcoins (BTC)? What would your investment have become today? Good or bad idea ? Let’s take a case study with this Internet user: he asked, in 2017, if it was a good or bad idea to borrow euros from his banker (rather friendly banker! Everyone knows that banks crypto friendly are not commonplace…)
First of all, it is important to emphasize that this article does not in any way constitute investment advice. A loan is always a risk, more or less great, and an investment in cryptos too. It is only a question here of looking at whether or not our Internet user had a good idea since his message dates from 2017 and his reimbursement would expire in November of this year.
Borrow €50,000 to buy bitcoins (BTC)?
November 19, 2017. On that date, bitcoin was at 6,874.18 euros at the highest of the day. At the lowest 6,585.29 euros. We will say that Stephen could have bought himself 7.5 bitcoins (bitcoin at approximately 6666 euros). For his bank loan, he would have had to repay 865 euros per month for 5 yearscost of credit 1930 euros.
We imagine that Stephen has a fairly comfortable salary to afford to repay such a sum each month. His banker is even in agreement with the idea. However the first answer in the forum is: ” Hi, this is the worst stupid thing to do… » Really ?
Yield calculations for buying bitcoin
So if Stephen had resold these days, around €20,000/bitcoin, he would have withdrawn from this sale €150,000 (7.5 bitcoins x €20,000, we skip the details on early repayment and other costs of case). Either a profit of €98,070 (capital gain). He should have cut 30% of taxes, the famous flat tax (29,421 euros), i.e. a net profit of €68,649 ! In other words 1144 € / month (with a ladle) over 5 years. (With a few months of floating between August and the loan anniversary date next November.)
With a resale on November 19, 2021, at around €50,000/bitcoin, there Stephen would have potentially repaid his loan in one go and could have kept the rest in bitcoin. Otherwise the sale proceeds would have been 375,000 euros – 1930 (cost of the loan) = 373,070 euros – 50,000 (investment) = €323,070. With 30% tax on the capital gain (96,921 euros), he would have been left with the tidy sum of €226,149that is 4711 euros per month for 4 years! A tad better than booklet A…
Morality: an investment is a personal matter
If Stephen listened to his instincts, his loan expires in November 2022, how much will bitcoin be worth? Unfortunately, he is no longer on the forum, so we don’t know what he did. (The calculations do not take into account prepayments, administration fees, etc.). Why this demonstration? Quite simply to emphasize that taking a risk (an investment) is a personal matter. It is to be discussed with the lender and as it is common to say ” only invest what you can afford to lose “. Which, it seemed, was the personal case of this netizen. He could, financially, afford to lose 50,000 euros.
An investment is always a risk
Over the past 5 years (since 2017), bitcoin (BTC) has experienced two crashes. Stephen could have sold, driven by the fear of losing everything (FUD). He could also have invested in a platform that eventually went bankrupt or trusted a scammer. But it is obvious that if he simply waited (HODL) and repaid the installments of his loan, we can say that Stephen62, the nickname of our Internet user, made an excellent deal. It was therefore impossible to affirm from the outset, without knowing his personal situation, nor knowing in advance the future of bitcoin, that it was a “stupidity”.
It is essential to emphasize that no investment is without risk. Whether it is rental real estate, shares, the purchase of a business, shares in a start-up, there are always risks. No investor can say that he has always been successful: even shrewd investors have been completely “plundered” by the sulphurous Madoff. But, on the contrary, those who do not take risks have little chance of seeing their money grow in any way. When it comes to bitcoin (BTC) and cryptos in general, the media, governments, and banks have done their best to keep people away from it. The only thing to do is educate yourself (DYOR) and get selfless advice. It is still a long time when states will offer specialized bitcoin training in public schools, as in El Salvador.
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Subprimes, financial crises, galloping inflation, tax havens… Bitcoin was designed for more transparency and perhaps finally change the situation. I try to understand this new environment and try to explain it myself. The road is undoubtedly long, but it is worth it.