Should you borrow against crypto? Here are the risks – MarketWatch

Should you borrow against crypto? Here are the risks – MarketWatch

This article is reprinted by permission from NerdWallet

Like a house, car or other investment, your cryptocurrency can serve as collateral for crypto loans, which are loans that can have low interest rates, same-day funding and no credit check.

The downside? If your crypto’s value falls, you may need to pledge more crypto.

“That is going to be the main disadvantage of crypto,” says Travis Gatzemeier, a certified financial planner and founder of Kinetix Financial Planning near Dallas. “It’s not a normal, stable asset that you’re using to borrow.”

Despite the risks, cryptocurrency — and borrowing against it — have become popular topics on public forums like Reddit and YouTube. But is a crypto loan right for you?

What is cryptocurrency?

Cryptocurrency entered the financial dialogue in 2008, with an anonymous programmer’s white paper on the concept of bitcoin.

Bitcoin is a cryptocurrency, or a digital form of money. It might seem complex — and depending on how you use it, it can be — but it’s essentially digital tokens as opposed to physical money. It can be exchanged for goods and services on the blockchain, which is a digital ledger that keeps track of every bitcoin transaction.

“The idea is meant to be pretty simple,” says Ariel Zetlin-Jones, associate professor of economics at Carnegie Mellon University in