Would you put your home as collateral when borrowing to buy crypto? Here is some food for thinking.
Because of the cryptocurrency space’s inherent volatility, O’Connell noted that investors need to take into account that Bitcoin is affected by monetary policy the same way other assets are and has “proven not to be an inflation hedge” while being highly correlated to other risk assets.
“They should expect the unexpected. Market cycles in crypto are highly volatile. Depending on their local regulations they can try and buy some protection through hedging perpetual futures to off their risk.” Perfumo noted that leverage is generally a tool used to maximize returns on capital and, in some cases, leverage it in a tax-efficient manner while also increasing the risk profile of transactions in which it’s being used. This means it’s “important for anyone looking to employ leverage to understand their risk tolerance and manage their risk effectively.”
“When making important financial decisions, it is important for everyone to consider their personal risk tolerance and financial goals. We often recommend people consult with advisers to determine the most appropriate investment strategies.”and their role in their overall investment portfolio. To investors who put in more than they can afford to lose, crypto exposure may seem like a nightmare.