An interesting study came out at the end of January 2022. This report examined 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 Morning Consult, a self-proclaimed business intelligence company.
I think this report might deserve further unboxing at some point. It contains an overview of consumer banking in general, trends, and a particular focus on millennial financial services that is definitely worth discussing. For today, however, I want to talk about cryptocurrency holders and their tendency to profit from dangerous debt practices, likely in an effort to acquire more crypto.
Morning Consult analyzed the habits of cryptocurrency owners in this study and compared these results to investors who avoided these assets. The study found that cryptocurrency investors are much more likely to engage in questionable financial services than their counterparts.
The idea of cryptocurrency holders abusing debt to collect more crypto is perhaps unsurprising. Reports of Bitcoin traders using wild leverage ratios are nothing new, even though the practice is known to be dangerous. But the actual numbers and type of debt crypto owners might choose to participate in, I find surprising.
Let’s start with a more benign treat. The report reveals that crypto owners were much more likely to use digital banks. Only one-third of all American adults said they take advantage of digital banking, compared to two-thirds of cryptocurrency owners.
Not surprising. Logically, crypto owners should be more comfortable with online-only financial providers given the very nature of cryptocurrencies and DeFi in particular. It’s a digital currency, so interacting with digital banks seems like a logical first step. Let’s move on.
However, the report goes on to say that cryptocurrency owners tended to carry more credit cards than the average American adult. 63% of crypto owners said they have 2 or more credit card providers, with a third of all crypto holders having 3 or more. Only 41% of all US adults said they had 2 or more card providers in December of last year.
As a reminder, the average credit card debt in 2021 hovered around $5,600, with 2 in 5 Americans carrying a card balance month over month. Perhaps the emergence of so-called “crypto credit cards” is playing into this increase over non-HODLers. Alarming numbers to play with, but we’re not done here yet.
Of all American adults surveyed for this report, only seven percent had taken out a payday loan or payday 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 groups regularly issue warnings against them. Even seven percent is too high a percentage.
The objective of these types of loans is not for the borrowers to repay them. Payday lenders expect borrowers to borrow money on an ongoing basis due to fees, interest, and loan timing. Borrowers tend to run out of funds before each payday, with few places to turn for help paying bills other than to the lender for another one predatory loan.
Despite this, cryptocurrency owners are two and a half times more likely to use loans or payday advances. Eighteen percent of crypto holders surveyed said they had used this type of predatory lending in December of last year, compared to seven percent of all American adults. That’s almost one in five HODL’ers.
The same goes for auto title loans, another potentially predatory business practice. Of 2,200 American adults, only 6% said they took out a title loan in December. Among crypto holders, however, that number swells. About 17% of crypto holders surveyed said they had taken out an auto title loan in the past year, nearly three times the average rate for adults.
These habits paint a bleak picture for the roughly 27 million Americans who own cryptocurrency. HODL’ers are more likely to have multiple credit cards, more than twice as likely to use payday loans, and almost three times as likely to borrow money against a sharply depreciating asset – a car – just to fund their crypto habits.
As an asset class, cryptocurrencies are still painfully new. Nobody can give you long term predictions for crypto because it just doesn’t exist. Hundreds of years of stock market records exist for trends, patterns, and best practices. For crypto, only about a decade.
An easy to use metric is: if you can’t afford crypto without borrowing money to buy it, then you can’t afford crypto right now.
And it’s good. Everyone has to start somewhere. Accumulate extra money where you can and start getting rid of your debt. Save an emergency fund to avoid getting into debt in the future and shore up your financial situation.
A kind of crazy thing happens when you have very little debt to pay off. you have nothing need to spend your money. Then you can spend your money on what you to want.
Crypto is big right now. I understand. It’s really huge and everyone talks about it. This year’s Super Bowl was jokingly called the Crypto Bowl for a reason. More money is pouring into this industry now than ever before.
Widespread adoption seems to be a matter of when, not if. But that doesn’t mean we should pursue it blindly.