Cybercurrency experts warn would-be investors
▶ Expat has to repay two thirds of his Dh12,000 salary for next 42 months
An expat who took out a huge loan to invest in cyptocurrencies and lost most of it has warned others of the risks involved.
The French airline cabin crew member, 32, invested a $100,000 (Dh367,000) bank loan after being lured by the prospect of quick returns. The value has since dropped to slightly more than Dh110,000.
Cryptocurrencies have slumped this year, wiping millions of dollars off the value of investments.
The cabin crew member admitted that he did not take financial advice before investing and heard about the scheme on a WhatsApp group.
He shared details of his crippling bank loan repayments, which account for two thirds of his Dh12,000 monthly salary, in a Reddit post, and hoped his experience would be a lesson to others.
“Still three and a half years to go until I’m freed,” he wrote on the site, referring to his repayment schedule.
He told The National that initial success in investing small amounts of his salary led to overconfidence.
“I invested my own money in September last year and it went very well. I made three or four times more than I had put in,” said the man, who lives in Abu Dhabi. “I decided to take a loan out at the end of the year to invest more money into it.”
The bank agreed to give him the loan and he invested the full amount in cryptocurrencies called XLM, Neo, XRP, ETH, and LTC. All are alternatives to Bitcoin.
“I made over Dh100,000 in 10 days and everything looked great,” he said. “But I did not cash out then. I had no experience in the stock market and just thought the money would grow. I earn around Dh12,000 a month and am paying back Dh8,000 of that to the bank.”
He is clinging on to the hope the investment value will rise again.
“I am not going to invest any more, but I am going to keep what I have where it is and hopefully it will go back in value,” he said.
Financial experts have urged the public to be wary with cryptocurrencies.
The cabin crew member admitted that he did not take financial advice before investing and heard about the scheme on a WhatsApp group
“I generally tell people to avoid them unless they are investing an amount that they are willing to lose,” said Keren Bobker, a financial adviser with Holborn Assets and columnist for The National.
“There are many different cryptocurrencies but all are high-risk investments, and most people are really not comfortable with this level of risk and volatility, which is often off the scale.
“People want to make money and there has been loads of coverage about people making large sums very quickly, so I can see why many are tempted.
“Do the majority actually understand what they are doing? Do people actually know if anything underpins cryptocurrencies and the real risks? I doubt it, not least as there is little to no regulation, no protection and no explanation of risks before purchase.”
Ms Bobker said the UAE Central Bank was among those that issued warnings against unwise investments in cryptocurrencies, but that some people were taken in by sales pitches.
“There are many people in the UAE with little financial knowledge who are easily swayed by the bright lights of easy money,” she said. “That, coupled with insufficient regulation, means we see far too many scams and tales of people losing their money.”
Monark Modi, chief executive of Bitex UAE, a cryptocurrency and digital trading wallet, said many ordinary investors were risking everything.
“People are becoming interested and want to move away from the stock market, but I would say at least 50 per cent of people making cryptocurrency investments are just guessing,” Mr Modi said.
Christopher Fernandez, founder of Block Gemini, a Dubai blockchain development agency and consultancy, said the currency market across the board was highly volatile at present.
Blockchain is an encrypted online database that also acts as a ledger for all transactions in digital currency.
Mr Fernandez pointed to the recent financial crisis in Turkey, in which the lira fell by almost 40 per cent. In that same period, Turkish Bitcoin increased in value by 63 per cent. One Bitcoin is valued at Dh25,712.
“I would also never advise anyone to invest more than 5 per cent of their portfolio,” he said.
“Getting rich fast is one of the things that people have in mind when they invest in new technology and that mentality will lead to losses, especially if you don’t know what you’re doing.”