Do banks consider your Bitcoin holdings when applying for a loan?
Cryptocurrencies like Bitcoin have garnered major mainstream interest over the past few years.
With so many people including various cryptocurrencies in their investment portfolios, some amassing significant wealth, you might be wondering if your crypto holdings carry any weight when it comes to impressing the loan manager of the bank.
Cryptocurrency is a type of crypto-asset, a cousin of non-fungible tokens (NFTs) and distantly related to security and utility tokens. Essentially, it’s digital money that isn’t usually backed by physical assets (like gold, for example).
There are many reasons why cryptocurrency is so alluring, including the fact that its value can skyrocket, leading to quick (albeit risky) lucrative practices through trading. Indeed, its value is based on the price people are willing to pay for it – otherwise known as speculation.
The cryptocurrency is also typically decentralized and allegedly benefits from increased digital security through its use of blockchain technology and encryption.
While Bitcoin is touted as the first cryptocurrency to hit digital wallets in 2009, the market is experiencing its “troubled teenage” years. Only, instead of mood swings, you have dramatic highs and shattering lows, leaving most people completely confused by her behavior.
In short, unfortunately not. This is partly due to the generally volatile nature of the cryptocurrency market.
A classic example is that an influential person, like Elon Musk, might make a tweet that causes the price of Bitcoin to crash, significantly devaluing your financial situation. This is not good news for you or the bank.
If your current financial situation is based on your crypto holdings, which can go up and down like a pogo stick, then your position is technically less concrete. This is why banks will not take your Bitcoin or other crypto into account when calculating their loan risk.
What banks and lenders really want to see is regular income and a proven history of repayments, among other things that increase your borrowing power.
Banks will also not consider your crypto-folio as these online coins are not considered a valid form of Australian currency, which is their bread and butter.
By cashing out your cryptocurrency holdings, you can use your Australian dollars for loan repayments or even a deposit.
If you’re considering buying a property, make sure you understand the home loan process, including the information and evidence you’ll need. After that, compare home loan options to find the best deal for you.