The Cryptocurrency Craze: Is Debt Worth It Or Will Bitcoin Bite You Back?

BlostPost - The Cryptocurrency Craze

Cryptocurrency is a hot topic that has catapulted it’s way into mainstream media, social media, water-cooler gossip and dinner table discussions alike.  While there is something to be said about the excitement and optimism generated from a ground breaking concept like Bitcoin and the rest of the cryptocurrencies, the bad news is that some people are risking their financial security to join the cryptocurrency craze and avoid the fear of missing out.

CRYPTO-WHAT?

Cryptocurrency is a digital form of currency which changes the traditional way we store our money. Unlike paper money—which is government regulated, controlled and issued by central banks—cryptocurrencies exist without any regulations and no central authority.

Another way to explain it is to use the example of purchasing something from an online retailer.  Normally, you would rely on a third party authority like your bank, PayPal or a credit card company to verify and facilitate the payment for the product; however, using cryptocurrency, there is no third party involved.  You, the consumer, are dealing directly with the retailer as your Bitcoin, Litecoin, etc, would simply be paid from your cryptocurrency wallet.  Yes, a wallet.

HOW DO YOU GET CRYPTOCURRENCY?

The main step is setting up your cryptocurrency wallet using an online software. Think of the wallet as a bank account where you send and receive the currency. A person can have multiple wallets that are stored online, in your computer harddrive or on your mobile device. Once you have your wallet, you’re ready to invest in one or more of the 1,500 different types of cryptocurrency directly from an online exchange.

HERE’S WHERE THE PROBLEM STARTS

There is now a major concern surrounding the fact that people are taking out mortgages, depleting their retirement funds or savings and even using credit cards as means to invest in Bitcoin and other cryptocurrencies.

Throughout these financial crazes, people adopt either a ‘fear of missing out’ or ‘get rich quick’ mentality, as they want to get into the game that their peers and potentially friends and family are profiting from. Unfortunately, when this happens people lose sight of assessing their current financial situation and put themselves at risk in hopes of a big return. Those especially vulnerable, are people who are already carrying heavy debt loads and getting into more debt to chase a profit they may never see.

Fortunately, I have yet to come across a situation where a person’s financial distress was caused by their investment in or use of Bitcoin or other cryptocurrency. However, in my experience as a Licensed Insolvency Trustee, I know that people might be reluctant to disclose the true cause of their financial difficulties because they are too embarrassed or ashamed.

RISKY BUSINESS

The cryptocurrency market is extremely volatile. In 2009, Bitcoin’s value was worth only a few cents. In 2017, it’s price bounced from $1,000 to $20,000 and then dropped back down to $13,000.  With that much volatility, true value is hard to pinpoint, and combined with it’s newness and not fully understood technology, these concerns make cryptocurrencies a risky investment.

Let’s be clear, there are numerous stories of people who’ve got lucky with cryptocurrency—but this risky investing is not for everybody.  Especially, since using cryptocurrencies doesn’t protect you from the risk of being scammed. In 2017, the Canadian Anti Fraud Centre reported that Canadians lost more than $1.7m through scams connected to cryptocurrencies—doubling the numbers from 2016. If you do plan on investing in cryptocurrencies, it is important you make yourself aware of potential scams such as:

  • Scammers who have attempted to extort money from people using Bitcoin
  • Scammers who have posed as tax collectors from Canada Revenue Agency demanding immediate payment through cryptocurrency

IS DEBT WORTH GETTING INTO THE GAME?

Over-extending yourself on credit to purchase cryptocurrencies or depleting your savings intended to pay down debt could potentially position you in an insolvency situation.  With household debt levels in Canada already high, people simply can’t afford to lose more money and fall deeper into further debt.

The banks are taking notice as well. TD Bank announced on February 23rd, 2018 that it would be banning the purchase of cryptocurrency with its credit cards to protect its customers as well as the bank. This ban announcement joins the wave of bans globally from other major banks.

THINKING ABOUT INVESTING?

If you are thinking about investing in a cryptocurrency or other risky investment, please consider the following steps before making your purchase:

  • Educate yourself & seek professional advice. Take the time to do the research and talk to a professional investment advisor about the cryptocurrency market.  You should have a solid understanding and realistic expectation of what you’re investing in.
  • If you don’t have the money, don’t invest. Focus your efforts on paying down your debt first or building your emergency fund/savings.  You do have control over in seeing your debt go away and having a comfortable cushion of savings.  You don’t have control over your return on investment in the cryptocurrency market.Freida Richer LIT

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

Brokenhearted with an Empty Wallet—Warning Signs of Online Relationship Scams

BlostPost - Brokenhearted with an empty walletAs a Licensed Insolvency Trustee, I hear a variety of facts, circumstances and events that have led to one’s financial distress. Being victimized through an online relationship scam can leave someone both emotionally and financially devastated.

According to the Canadian Anti-Fraud Centre, online relationship scams are the highest grossing scam compared to other internet frauds. As is usually the case, the online dating starts out innocently on a legitimate dating website, but evolves with intention by the perpetrator to ultimately steal money from the innocent party. It’s tough to pinpoint the exact number of people in Canada who have been victimized by an online dating scam, because a person is usually too embarrassed or ashamed to admit that they were taken advantage of.

The most heartbreaking story I’ve heard was from a lady who was involved in a nearly one year online relationship which was ultimately discovered to be fraudulent.  Throughout the “relationship”, she lost in excess of $100,000—her entire life savings—from a series of wire transfers to the perpetrator.  She didn’t see the warning signs at the time. Why? She believed him.  She was in a time in her post-divorce life where she was desperately seeking companionship and he preyed upon that.

With love being top of mind during the month of February, those involved in online relationships should take time to evaluate whether their relationship is causing them financial distress.

Look for the non-financial warning signs by asking yourself:

  1. Is he/she “too good to be true”? Have your guard up if they appear perfect or are giving you all the right answers all the time.
  1. Is he/she transitioning the contact from the dating site to personal email, text or phone? If so, they may be moving into their next phase—gaining trust and more personal information from you outside of the restrictions of a bona fide dating website.
  1. Is he/she making excuses for not being able to meet in person (i.e., problems with their travel visa or lost passport)? Keep their reasons for not being able to meet in your back pocket and determine if there is a pattern.

Look for the financial warning signs by asking yourself:

  1. Am I being asked about my financial background in the early stages of the relationship? If they want to know how much you earn, the car you drive, whether you invest, or the kinds of credit cards you have, you’re being sized up. This is the start of their attempt to gain access to your assets, money and credit.
  1. Am I considering sending money to this person and why? Scammers often use the excuse of an “emergency” or “crises”, like a sick family member. The dollar amounts usually start out small, but progressively get higher and with more frequency.
  1. Am I using credit more frequently to cover living expenses or taking out bank loans? Finding yourself with more money issues since you’ve started the online “relationship” should be a clear warning sign.

Taking these simple steps can prevent you from falling victim to an online dating scam:

  • Tell a family member or close friend about your new relationship.  Victims have told me in hindsight that had they told a friend about the first wire transfer of money, matters wouldn’t have escalated.  If you’re blinded by love, let your friend or family member be that voice of reason.
  • Don’t release financial information about yourself and never send money to someone you’ve met online.  Be clear from the start that there will be no discussions about your finances, and if a request for money is made stop communications immediately.  If these conditions are a problem for the other person, then you’ll know where their intentions lie.


If you are concerned that you are being financially targeted in an online relationship, you should contact your bank immediately to stop payment on any cheques or money transfers you’ve recently issued.  Unfortunately, any money you’ve given the perpetrator up until that point is money you’re never going to see back.  Next, report the matter to the RCMP.  You’ll likely be directed to file a report with the Canadian Anti-Fraud Centre.

If you are now facing overwhelming debt because of a fraudulent online relationship, it’s important to speak to a Licensed Insolvency Trustee.  The emotional toll of not only losing the relationship, but your savings as well, can make it extremely difficult to focus on resolving your situation. A Licensed Insolvency Trustee can help sort out the situation and help you come up with a viable solution to your financial troubles. Practical solutions such as budget adjustments, debt consolidation and a consumer proposal are all options to consider before bankruptcy.

We can’t mend your broken heart, but we can help mend the hole in your wallet.

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.