Bitcoin and stock markets fall – the options for the highly geared investor

Blog Economy Liquidation

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All bubbles burst.  This week has shown further falls on the Bitcoin exchange and volatility on the worldwide stock markets. With the benefit of 20/20 hindsight we would all have the clairvoyance of Warren Buffet and know the optimum times to buy or sell.  However, life isn’t that kind.

In an effort to avoid possible credit defaults, Lloyds Banking group has announced that it will no longer permit customers to buy Bitcoins on their credit cards.  This suggests they have seen asset poor cryptocurrency speculators borrowing heavily to fund their investments.

History repeats itself.  If we were to roll back to 2007, pre credit-crunch property investors saw that market climbing irresistibly higher and higher.

Many investors built huge buy to let portfolios on the back of 100% Loan to Value mortgages.  This worked out ok for those who bought pre-2004 and had therefore accumulated a reserve of equity prior to the eventual crash.  Those who were late arriving at the party were less fortunate.

At Gibson Hewitt, we met multiple individuals who built their buy-to-let portfolios just before the bubble burst.  They were left with negative equity in the region of 10% across their portfolio.  Whilst this is manageable on a small portfolio, the typical 10 flat portfolios in question meant they were instantly insolvent to the tune of about £2M.

Returning to present day; Bitcoins and cryptocurrencies are a far more volatile investment.  The current exchange rate is less than half that from December 2017.  A fall of 50% in under 2 months!

Such a loss would be painful for any investor, regardless of their means.  However, Lloyds’ actions suggests some speculators had no asset base and were funding their investments with debt.  These individuals will now be considering the unenviable decision between selling up to crystallise their losses or holding their nerve and hoping the market performs an about-face.  If they realise their losses, the sales proceeds will only repay half the associated debts.

Gibson Hewitt are a firm of Licenced Insolvency Practitioners.  We specialise in finding innovative solutions to such problems.

Post credit crunch, we used Individual Voluntary Arrangements, (“IVA”)s, to enable property speculators to unwind their positions in an orderly fashion and thereby limit the impact on both them and their creditors.

The same IVA procedure can be used to help an individual who is excessively exposed to the falling Bitcoin or other markets.

If you are unable to repay your liabilities, contact Lynn Gibson on 01932 336149 for more information or to arrange an initial FREE meeting at which we can explain your options.

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