The Debt Panel: 'How can I unlock my crypto wallet and access my money?'

The Dubai resident bought the digital tokens with his credit card and is finding it difficult to keep up with monthly repayments

Nick Donaldson / Getty
Beta V.1.0 - Powered by automated translation

I have been trading in cryptocurrencies on a platform since last year. However, I have been unable to withdraw money from my crypto wallet since May.

I have Dh55,000 ($14,976) worth of cryptocurrencies locked in my wallet on this trading platform.

I bought the cryptocurrencies with my credit card, hoping I would get good returns on them and also because I did not want to link my bank account to my crypto wallet. The platform charged me an additional 3 per cent fee for each transaction paid with the credit card.

________________

Watch: what happened to the Bitcoin price?

However, I am now faced with a high credit card bill every month owing to interest and fines for late and missed payments.

Will any credit card protection programmes apply? Also, would I have earned any rewards for card transactions in my crypto wallet?

I tried sending many emails to the trading platform’s customer support team. However, there is no response.

The value of my crypto assets have also dropped because of the extreme market fluctuations. Can you suggest a solution to my financial problem? AK, Dubai

Debt panellist 1: Steve Cronin, founder of DeadSimpleSaving.com

Your financial woes can be linked to three mistakes: trading, trading in cryptocurrencies and trading using money borrowed from credit cards.

Trading is buying and selling assets — any asset — regularly, rather than holding them for the long term.

A tiny percentage of people make good money from trading over the long term. Most people do well occasionally and boast very loudly about their successes.

Then they lose nearly everything, but are very quiet about these losses.

People new to trading are then inspired by social influencers, trading platform advertisements and the brief trading wins of friends.

It is pure gambling and you should never do it again, especially not with money that 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.

The risk is significant for both the cryptocurrency you are trading or investing in, as well as the platform you are using for investment.

Cryptocurrencies can plunge in value due to fraud, “pump and dump” schemes, a failure to live up to their promise, concerns around the value of cryptocurrencies generally or even entire investment markets moving away from risky investments as interest rates rise and people have less money to invest.

Crypto trading platforms can have problems, especially as very few have been around for more than a couple of years.

They may have technical issues or security issues. They may have invested their own capital or investors staked cash in assets that were far riskier than anyone expected.

They may also face liquidity issues, where there is not enough cash to cover all the demands for withdrawals from the platform. Or, again, they may be fraudulent and have stolen your money.

The cryptocurrencies in your wallet on this trading platform may eventually be unlocked if the platform is bought out by a larger company or finds another way to restore its financial situation.

___________________

Cryptocurrencies — in pictures

You should then immediately sell whatever you have and use it to pay off part of your card debt. If the company is unresponsive, I expect other people will be in the same situation. You should look out 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 every month to avoid interest and late/no payment fees.

Even then, you are still paying an extra 3 per cent 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, limiting fraud risk.

As you did not pay off the card balance each month, you were trading beyond your means and you would probably have still ended up in debt due to trading losses even if the platform hadn’t frozen your account.

Each card provider has different terms and conditions around rewards and consumer protection, so you need to read the documents related to your specific card.

However, I strongly doubt there is any protection or rewards for investing on cryptocurrency or stock platforms. Such incentives would encourage risky behaviour.

You should focus now on figuring out how to pay off your card debt before it grows any bigger.

See if you can convert it into a personal loan at a lower interest rate. Find ways to earn extra income, slash your expenses, sell any assets you have or borrow money from a relative.

Learn from your mistakes and warn others, too, so your trading adventure becomes a useful life lesson rather than a total waste of money.

Debt panellist 2: Vijay Valecha, chief investment officer at Century Financial

There have been wild swings in global risk markets this year.

Cryptocurrencies, with their added high-risk, high-beta profile, have been even more erratic in their price reaction.

Major cryptocurrencies, including Bitcoin and Ether, have lost more than 60 per cent this year. However, some, such as stablecoin TerraUSD and sister token Luna, have suffered a complete wipeout in their market value.

Reports of cryptocurrency withdrawal problems have become the norm this year.

This is primarily due to a liquidity crisis, as the wild price swings cause market makers to be averse to counterparty risks.

Most cryptocurrency platforms that provide spot wallet facilities do not come under one specific regulatory law.

The inability of the major developed market nations to correctly classify and regulate the crypto space has only provided more space for such exchanges to grow.

I strongly suggest that you check if the crypto trading platform you are using is registered with a regulatory authority.

If it is registered under the ambit of a local authority, then you should get in touch with the authorised personnel, keeping the platform provider in the loop.

You should also look for a crypto investor community forum and try to confirm if this has happened with other clients of the exchange.

Having a collective bargaining power can sometimes compel the authorities to take a “Suo Moto cognisance” of the matter.

In the case of the Terra/Luna cryptocurrency debacle, South Korean authorities requested Interpol to issue a red notice for the arrest of Terra Labs co-founder and chief executive Do Kwon after the $40 billion collapse of the 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 cannot do much to honour its client obligations during a cryptocurrency market liquidity crisis.

A better alternative would be to invest money with a regulated exchange broker or a contract-for-differences (CFD) provider.

With such entities, the withdrawal of principal/profits is relatively transparent and straightforward as they do not lock the client’s money in spot cryptocurrency wallets.

Debt panellist 3: Carol Glynn, founder of Conscious Finance Coaching

It is not advisable to use a credit card to buy investments.

The only exception would be to use the card to make the transaction and then immediately transfer from your current account and clear the balance due.

However, paying 3 per cent additional per transaction is also an expensive extra cost to incur unnecessarily if you have the cash available in your bank account.

Focus on paying the credit card balance in full as soon as possible.

If you have income, cash or savings, I would advise you to make at least the minimum credit card payments.

As you have experienced, the penalties for late and non-payment and interest charges are very expensive. The interest alone is potentially more than 42 per cent a year.

Quote
Regarding access to your cryptocurrency assets, if your emails are continually ignored by customer service, it is time to escalate the issue
Carol Glynn, founder of Conscious Finance Coaching

To add to the cost, the interest charged on amounts not cleared, combined with incurring late payment fines, results in interest charged not only on the amount originally charged to your card but also on the fines and previous months' interest.

Very quickly, you will find the debt multiplying.

If you do not have savings to utilise, can you obtain a personal loan to clear the credit card debt?

You will save significantly on fines and interest by consolidating your debt in this way. Alternatively, do you have family or friends who you can borrow money from, ideally at a low interest rate?

Credit card protection programmes will not help in this situation. They usually provide cover when you are unable to make payments due to loss of employment.

The rewards you can earn on your credit card are dependent on the type of card you have. You can check the terms and conditions in your credit card agreement. Usually, rewards earned are listed on the bank's online portal or mobile app.

Regarding access to your cryptocurrency assets, if your emails are continually ignored by customer service, it is time to escalate the issue.

Is there a formal complaint process outlined on the platform? If so, follow the steps outlined there.

The next step would then be to raise a complaint with the regulator the platform is registered with. If you suspect fraud, then this would be a police matter in the jurisdiction in which the platform is registered.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae

Updated: October 26, 2022, 5:00 AM
NEWSLETTERS