A French flight attendant who lives in Abu Dhabi took out a USD 100,000 loan for crypto trading after some previous success but ended up getting burned due to the sudden crash in crypto prices near the beginning of 2018. His tale is a cautionary tale for crypto investors; it is essential to do thorough research and to fully understand the crypto markets before investing.
The flight attendant first heard about crypto on his company’s WhatsApp channel, prompting him to buy some crypto in September 2017. He made quick 300-400% profits during the biggest crypto rally in history, giving him confidence in his trading abilities and a desire to invest even more.
He applied for a bank loan and showed them his profits on his crypto investments and his plans to make money on the loan by investing in Stellar Lumens (XLM), Neo, Ripple, Ethereum, and Litecoin. Shockingly, the bank gave him an AED 367,000 loan, worth USD 100,000 at the time.
His first big mistake was investing completely in altcoins and nothing in Bitcoin. Even the most ardent altcoin developers typically believe that Bitcoin is the most stable of cryptocurrencies, which are extremely volatile in nature. Charlie Lee, the founder of Litecoin, suggests traders keep most of their investment in Bitcoin. It has the most infrastructure, liquidity, and demand, and will be the most stable and profitable crypto for the foreseeable future.
At first, the flight attendant made tremendous profits: USD 30,000 in just ten days. However, this was the end of the crypto rally and crypto markets went from rally into crisis mode. The flight attendant said, “But I did not cash out then. I had no experience in the stock market and just thought the money would grow.”
If the flight attendant had done proper research, he would have seen in past data that cryptocurrency tends to pump and dump. Cryptocurrencies can rise incredibly fast, turning the market into an unsustainable bubble, and then the bubble pops at an unpredictable time and the market crashes.
Now, he is forced to pay back AED 8,000 per month to the bank, two-thirds of his AED 12,000 salary. He says he is holding onto his crypto long term though, which has depreciated to AED 110,000, worth USD 30,000.
Ultimately, this loan disaster tale may end positively for this crypto trader, since Bitcoin tends to go up by an order of magnitude (1,000%) every three years or so. There’s no guarantee that will happen for this flight attendant, especially since he is holding altcoins but history suggests it is possible.
Regardless, the obvious lesson here is that crypto traders need to do thorough research and understand the market before investing. Once the proper amount of research is done, it becomes obvious that taking out a bank loan much larger than your life savings to invest in altcoins is incredibly risky.
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