Getting out of unfortunate financial circumstances is a situation that many people across the world must unfortunately face. It can be difficult to pay off massive debts, even more so if a person already has financial troubles outside of their own debts.
The most important way that we track whether a person is prone to accruing unpaid debts is via the credit score system.
This system helps lenders to gauge whether a person can be trusted to pay back debts, based on their current score, which is reflective of whether they have previously paid back debts in a timely manner.
The only problem is, escaping from a bad credit score is incredibly difficult, and this can often lead people to such situations to be targeted by those offering incredibly enticing prospects, like subprime loans and crypto.
But what actually are subprime loans and crypto? How are they actually very similar in some surprising ways? And what can past experience with subprime loans tell us about the potential future of crypto?
Let’s take a look to find out how crypto became the new subprime!
What Is Subprime?
Of course, starting off, you may be finding yourself wondering just what Subprime actually is! Put simply, a subprime loan is one that is directly targeted toward borrowers that are known for having a poor credit history.
This is where the name derives from. The borrower that is targeted by such a loan has a credit score that is currently ‘subprime’.
Often, subprime loans tend to be incredibly enticing, but have much more stringent rates and terms.
The rate of interest on subprime loans is often much higher than on average credit loans, which makes them particularly dangerous for those with already-low credit scores.
Are Subprime Loans Bad?
Yes. Subprime loans are often criticized for targeting individuals with little financial mobility, and those with very few options when it comes to paying back debts.
These loans directly target the vulnerable, and the poor, which makes them incredibly morally questionable as a way for lenders to make a profit.
What Is Crypto?
Before we dive into what makes crypto and subprime so similar, it is worth refreshing ourselves on what crypto is.
Cryptocurrencies distinguish themselves from “Real” currencies by being entirely virtual and digital-based.
Cryptocurrencies can be used in transactions, and are minted in a way that ensures that they cannot be replicated, making each element of the currency unique in its own way.
How Crypto Became The New Subprime?
Similar to Subprime, cryptocurrencies are often sold to those in shaky financial situations, who are sold on the idea that said currencies can yield incredible turns on investment if the buyer is willing to take the risk.
Of course, cryptocurrencies have enabled some people to create a massive profit, but this is a very small percentage, and the cryptocurrency market is inherently very volatile.
Subprime loans are not offered quite as often as they once were, and this has allowed cryptocurrencies to very easily stand in their shadows and become a perfect replacement, preying on the vulnerability of the poor.
Cryptocurrencies sell themselves as being a futuristic and modern currency that allows an individual to fully control their own financial destiny, but oftentimes using those same currencies is incredibly difficult.
Even 13 years after Bitcoins were first introduced, very few applications to allow them to be spent have yet been developed.
Even in places where Bitcoin can be used as legal tender, there are often unprecedented transaction fees that further impact users of lower income.
Cryptocurrencies are also currently experiencing a massive market crash, which is directly affecting those that have invested in them.
As we mentioned earlier, many poorer people have been sold on the prospect of cryptocurrencies based on the idea that crypto was experiencing exponential growth, and that those same people should invest quickly in order to not miss out on the potential return on investment.
Now, because of the very public market crash in the crypto world, those same vulnerable people whose hopes were preyed on are left picking up the pieces in the wake of this massive crash.
Subprime loans were once celebrated as a way for those that were previously excluded from financial opportunities as a result of bad credit to enter the housing market or to pull themselves out of a financial slump.
Cryptocurrencies, similarly, have been praised as a way for more diverse sets of people, even those with little income, to begin investing.
However, also similar to subprime loans, the crash of the market has meant that many vulnerable people have found themselves in even deeper financial ruin!
To Wrap Up
As you can now see, the similarities between cryptocurrencies and subprime loans are actually rather stark, especially in how they target vulnerable people with their promises of brighter financial futures despite the risks inherent in them.
Cryptocurrencies have made it easier than ever for just about anyone to get started with investing, but this in turn means that those same people have been unfairly impacted by the crash of the crypto market.
Frequently Asked Questions
What Caused The 2022 Crypto Crash?
With more people needing financial aid in recent months, thanks to rising energy costs, many people who have invested in crypto have pulled out their investments to draw upon that money.
However, this has led many crypto lenders to make it impossible to withdraw investments, in an attempt to save the market, but this has in turn caused animosity, which has caused the market to crash.
How Did Crypto Become Popular?
The most simple reason why crypto became so popular is that it is incredibly accessible, being online-based. It has also opened up investment opportunities for countless people.
What Happens To Crypto In A Financial Crisis?
In times of financial crisis, cryptocurrencies just like ordinary currencies will see a fall. Cryptocurrencies cannot act as a total safe haven.
Paul Martinez is the founder of BendingDestiny.com. He is an expert in the areas of finance, real estate, and eCommerce.
Join him on BendingDestiny.com to learn how to improve your financial life and excel in these areas. Before starting this blog, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.