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Forex in this article
• Cryptocurrencies are becoming increasingly popular
• Online brokers make it easier to enter the crypto market
• Numerous risks should be considered
Cryptocurrencies are becoming more and more mainstream. While digital currencies were originally conceived as a decentralized, independent and cross-border means of payment, they are now in particular demand as assets with which long-term investors hope to generate a healthy return. No wonder, after all, the original cyber currency Bitcoin was only worth 0.08 US cents at the time it was created. The price is currently more than 41,000 US dollars. The previous record high is just under 69,000 US dollars.
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As the crypto payment company TripleA writes, in 2021 there were over 300 million users of digital currencies worldwide. According to financial economist Hartmut Walz, the fact that more and more people are deciding to enter the crypto market is also due to the fact that they would suffer from FOMO, i.e. the fear of missing out, as he told the German Press Agency.
The path to cryptocurrencies is getting easier and easier
In addition, however, it is now also much easier to get hold of cryptocurrencies. There are now numerous brokers who make trading in digital assets much easier for small investors. In the past, cryptocurrencies could usually only be purchased via foreign trading places and then had to be transferred to your own wallet, whereby this process could be quite complex and difficult to understand, especially for newcomers. However, with the new offerings of trading apps, this process has now been made much easier. Cryptos can already be purchased with a click or swipe, which are then immediately managed in the appropriate wallet at the broker.
Risk must not be underestimated
Nevertheless, the simplicity of acquiring crypto currencies should not hide the fact that cyber currencies are still high-risk investments. Walz also sees it this way: “It is a fatal signal that the purchase of digital currencies is becoming easier and easier. It is aimed at the wrong target groups,” Die Welt quoted him as saying. Finally, when investing, the principle should always be followed, do not buy anything that is not understood. Only die-hard tech nerds should actually be able to understand and assess what actually lies behind the numerous cryptocurrencies that are now available. After all, many an investor stumbles if only the blockchain technology, which is the basis of all cyber currencies, is to be explained. “No one can really assess the risks, especially not small investors. Even the basics of the technology behind the currencies are difficult to understand,” says the financial expert.
High volatility of cryptocurrencies
There is a risk when trading cryptocurrencies in their extremely high volatility. Price rallies as well as drastic losses in value are not uncommon for cyber currencies, although it is extremely difficult if not impossible to predict the direction in which prices will develop. After all, a single tweet from Tesla boss Elon Musk is often enough to trigger double-digit price jumps or losses.
Total loss of value not excluded
In addition, it should not be forgotten that digital currencies only exist online and that many have no real value behind them. Accordingly, it can happen at any time that a cryptocurrency disappears completely from the market and an investor loses his entire investment. In this context, scams are not uncommon, with hyped initial coin offerings ultimately taking money out of the pockets of investors hungry for returns.
Additionally, the regulation of crypto assets remains a question mark in many countries. Other countries, such as China, have already decided to ban cryptocurrency trading altogether.
Cryptos rather unsuitable as inflation protection
In addition to a high return, some investors also hope to have inflation protection in their portfolio by holding cyber currencies. After all, Bitcoin, for example, is a means of payment whose quantity is limited to a total of 21 million coins. In addition, no new coins can be created – in contrast to fiat money, which in principle could be made available endlessly by the central banks. Similar to the popular safe haven gold, the Urcyberdevise is a finite resource. For this reason, the two assets are often mentioned in the same breath to protect against inflation. In fact, during the last downturns in the stock market, for example due to the corona pandemic or the Ukraine war, it has been shown that cryptocurrencies behave more like risky assets and accordingly follow the trend of the market.
Secure yourself properly
Despite these different risks, investors can of course still choose to make the bet. However, crypto expert Timo Emden from Emden Research advises the world that beginners protect themselves here: “You should buy several currencies to minimize the risk of default.” In addition, it would pay off to think long-term and not hope for quick wins. If someone is willing to take the risk, nothing stands in the way of crypto investing.
Editorial office finanzen.net
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