I have been trading cryptocurrencies on a platform since last year. However, I have not been able to withdraw money from my crypto wallet since May.
I have 55,000 Dh ($14,976) of locked cryptocurrency in my wallet on this trading platform.
I bought the cryptocurrencies with my credit card, hoping to get good returns and also because I didn’t want to tie my bank account to my crypto wallet. The platform charged me an additional 3% fee for each transaction paid with the credit card.
Watch: what happened to the price of Bitcoin?
However, I now face a high credit card bill every month due to interest and fines for late and missed payments.
Will credit card protection programs apply? Also, would I have earned rewards for card transactions in my crypto wallet?
I tried to send many emails to the trading platform’s customer support team. However, there is no answer.
The value of my crypto assets also dropped due to extreme market fluctuations. Can you suggest a solution to my financial problem? AK, Dubai
Debt 1 panelist: Steve Cronin, founder of DeadSimpleSaving.com
Your financial problems may be related to three mistakes: trading, trading cryptocurrencies, and trading with money borrowed from credit cards.
Trading is about buying and selling assets – any asset – regularly, rather than holding them for the long term.
A tiny percentage of people make a lot of money from long-term trading. Most people do well from time to time and brag very loudly about their successes.
Then they lose almost everything, but are very discreet about these losses.
Newcomers to trading are then inspired by social influencers, advertisements from trading platforms and brief trading gains from friends.
It’s pure gambling and you should never do it again, especially not with money you can’t afford to lose – and certainly not with borrowed money.
Cryptocurrencies are here to stay in one form or another, but they are still very risky investments.
Risk is significant for both the cryptocurrency you are trading or investing in, as well as the platform you are using to invest.
Cryptocurrencies can drop in value due to fraud, “pump and dump” schemes, failure to deliver on their promise, concerns about the value of cryptocurrencies in general, or even investment markets integers moving away from risky investments as interest rates rise and people have less money to invest.
Crypto trading platforms can have problems, especially since very few have been around for more than two years.
They may have technical issues or security issues. They may have invested their own capital or investors have invested cash in much riskier assets than expected.
They may also face liquidity issues, when there is not enough liquidity to cover all withdrawal requests from the platform. Or, again, they may be fraudulent and have stolen your money.
The cryptocurrencies in your portfolio on this trading platform may eventually be unlocked if the platform is taken over by a larger company or finds another way to restore its financial position.
Cryptocurrencies — in pictures
You should then immediately sell everything you have and use it to pay off some of your card debt. If the company doesn’t respond, I expect other people to be in the same situation. You should look for updates in the news and on web forums or social media.
Using credit cards to invest in anything is a very bad idea, unless you can pay off the card balance in full each month to avoid interest and late/no payment charges.
Even then, you still pay an additional 3% for each transaction. I understand your concern about linking a bank account to the trading platform, but you could have used a bank account with only a small cash balance, thus limiting the risk of fraud.
Since you weren’t paying off the card balance every month, you’re trading beyond your means and would likely have gone into debt due to trading losses even if the platform hadn’t frozen your account.
Each card provider has different terms and conditions regarding rewards and consumer protection, so you should read the documents related to your specific card.
However, I highly doubt there is any protection or rewards for investing in cryptocurrency or stock platforms. Such incentives would encourage risky behavior.
Now you should focus on how to pay off your card debt before it gets bigger.
See if you can convert it into a personal loan at a lower interest rate. Find ways to earn extra income, cut expenses, sell all your assets, or borrow money from a relative.
Learn from your mistakes and also warn others, so that your trading adventure becomes a useful life lesson rather than a total waste of money.
Debt 2 Panelist: Vijay Valecha, Chief Investment Officer at Century Financial
There have been wild swings in global risk markets this year.
Cryptocurrencies, with their high-risk, high-beta profile, have been even more erratic in their price reaction.
Major cryptocurrencies including Bitcoin and Ether have lost over 60% this year. However, some, such as stablecoin TerraUSD and sister token Luna, suffered a complete wipeout of their market value.
Reports of cryptocurrency withdrawal issues have become the norm this year.
This is mainly due to a liquidity crunch, as wild price swings make market makers reluctant to counterparty risk.
Most cryptocurrency platforms that provide cash wallet facilities do not fall under a specific regulatory law.
The inability of major developed market countries to properly categorize and regulate the crypto space has only provided more room for these exchanges to grow.
I strongly suggest you check if the crypto trading platform you are using is registered with a regulatory authority.
If it is registered under the control of a local authority, you should contact authorized personnel, keeping the platform provider informed.
You should also search for a crypto investor community forum and try to confirm if this has happened with other exchange clients.
Having collective bargaining power can sometimes force authorities to take a “Suo Moto knowledge” of the issue.
In the case of the Terra/Luna cryptocurrency debacle, South Korean authorities asked Interpol to issue a red notice for the arrest of Terra Labs co-founder and CEO Do Kwon after the collapse $40 billion worth of digital coins.
Investing in cryptocurrency is often tricky and investors should always use properly regulated exchanges.
However, it is essential to note that even a regulated exchange can do little to meet its obligations to its customers during a liquidity crisis in the cryptocurrency market.
A better alternative would be to invest money with a regulated stock broker or contract for difference (CFD) provider.
With such entities, the withdrawal of principal/profits is relatively transparent and straightforward as they do not lock customer money into spot cryptocurrency wallets.
Debt 3 Panelist: Carol Glynn, Founder of Conscious Finance Coaching
It is not advisable to use a credit card to purchase investments.
The only exception would be to use the card to complete the transaction and then immediately transfer from your checking account and settle the balance due.
However, paying 3% more per transaction is also an expensive additional cost to incur unnecessarily if you have the money available in your bank account.
Focus on paying the credit card balance in full as soon as possible.
If you have income, money or savings, I would advise you to make at least the minimum credit card payments.
As you have seen, late and non-payment penalties and interest charges are very high. The interest alone is potentially over 42% per year.
To add to the cost, interest charged on uncleared amounts, combined with late payment fines, results in interest being charged not only on the amount originally charged to your card, but also on prior months’ fines and interest.
Very quickly, you will find that the debt multiplies.
If you don’t have savings to use, can you get a personal loan to clear credit card debt?
You will save significantly on fines and interest by consolidating your debt. If not, do you have family or friends you can borrow money from, ideally at a low interest rate?
Credit card protection programs will not help you in this situation. They generally provide coverage when you are unable to make payments due to job loss.
The rewards you can earn on your credit card depend on the type of card you have. You can check the terms and conditions in your credit card agreement. Usually, earned rewards are listed on the bank’s online portal or mobile app.
Regarding access to your cryptocurrency assets, if your emails are continually being ignored by customer service, it’s time to escalate the issue.
Is there a formal complaint process outlined on the platform? If so, follow the steps outlined here.
The next step would then be to file a complaint with the regulator with which the platform is registered. If you suspect fraud, then it would be a police matter in the jurisdiction in which the platform is registered.
The Debt Panel is a weekly column to help readers manage their debts more effectively. If you have a question for the panel, write to [email protected]
Updated: October 26, 2022, 5:00 a.m.