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The crypto crash is a 'double whammy' for young investors who racked up debt to buy tokens, says investment platform

Carla Mozée   

The crypto crash is a 'double whammy' for young investors who racked up debt to buy tokens, says investment platform
  • Young investors are facing a "double whammy" of crypto investment loss and rising debt, said Interactive Investor.
  • The firm's study last year found many young adults used credit cards and other loans to buy digital coins.

The crypto selloff that's erased hundreds of billions of dollars from the market this week is likely hitting young investors particularly hard, Interactive Investors said Thursday, noting that nearly half of UK young adults chose cryptocurrencies as their first asset class in which to invest.

The panic sweeping through the crypto sector after the collapse in stablecoin TerraUSD wiped off $310 billion from the digital assets market between Monday and Wednesday, according to figures from CoinMarketCap. Crypto prices continued to fall on Thursday, with bitcoin down 3% at $28,512.28 and ether, the token for the ethereum blockchain, off by 11% at $1,955.68. TerraUSD, the flashpoint of the current market downturn, was recovering ground but at $0.59 was still below its $1 peg.

A culmination of long- and short-term factors have driven the selloff, including worries about regulation and security breaches as well as pressures on traditional financial markets such as geopolitical uncertainty and interest rate hikes in the US, according to online investment services firm Interactive Investor.

"Whatever the reason, the crash is a tough pill to swallow for those who made their very first investment in cryptos," wrote Myron Jobson, senior personal finance analyst at Interactive Investor, in a note.

A study from the firm in June 2021 found that 45% of young adults between 18 and 29 made crypto their first investment of choice, with "an alarming number funding this through a cocktail of credit cards, student loans," and other loans.

"The worry is many have been hit with a double whammy of investment loss and a deeper plunge into debt. The debt issue is made worse with rising interest rates," he said.

A fifth of all 18- to 29-year-olds responding to the survey said they had invested in bitcoin at some point. Half of them turned to debt to fund their purchases, with 23% using a credit card, 17% using a student loan, and 16% using another type of loan. The firm said 27% of dogecoin buyers used their credit cards to buy the meme coin.

And since that survey was taken, the Federal Reserve and the Bank of England have started raising their respective benchmark interest rates to bring down high inflation. US inflation hit 8.3% in April and the BOE has warned of inflation breaching 10% this year from its current 7% rate.

Credit card borrowing rose to a record £1.5 billion ($1.83 billion) in February 2022, the BOE said in March. The average annual interest rate on UK credit cards rose above 21% in late 2021.

"The Bitcoin, and the broader cryptocurrency story, is far from over, but the sell-off reflects the high risk and volatile nature of cryptos," said Jobson."While volatility is part of the growing pains of the relatively new crypto market, the tumult in price action has left investors whipsawed."