• Cryptocurrencies are becoming increasingly popular
• Online brokers make it easier to enter the crypto market
• Many risks must be taken into account
Cryptocurrencies are becoming more and more common. While digital currencies were originally conceived as a decentralized, independent and cross-border means of payment, they are now particularly in demand as assets with which long-term investors hope to generate a healthy return. No wonder, after all, that the original cyber currency Bitcoin was only worth 0.08 US cents at the time of its creation. The price is currently above US$41,000. The previous record was just under US$69,000.
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As crypto payment company TripleA writes, in 2021 there were over 300 million digital currency users worldwide. According to financial economist Hartmut Walz, the fact that more and more people decide to enter the crypto market is also due to the fact that they would suffer from FOMO, that is, the fear of miss it, as he told the German press agency.
The path to cryptocurrencies is getting easier and easier
In addition, it is now also much easier to obtain cryptocurrencies. There are now many brokers that make trading digital assets much easier for small investors. In the past, cryptocurrencies could usually only be purchased through foreign trading venues and then had to be transferred to your own wallet, which process can be quite complex and difficult to understand, especially for newcomers. However, with the new trading app offerings, this process is now much easier. Cryptos can already be purchased with a click or swipe, which are then immediately managed in the appropriate wallet at the broker.
The risk should not be underestimated
Nevertheless, the simplicity of acquiring cryptocurrencies should not hide the fact that cybercurrencies remain high-risk investments. Walz also sees it this way: “It’s a fatal signal that buying digital currencies is getting easier and easier. It’s aimed at the wrong target groups,” he said, as quoted by Die Welt . Finally, when investing, the principle should always be followed, do not buy anything that is not understood. Only tech geeks should be able to understand and assess what is really behind the many cryptocurrencies now available. After all, many investors stumble if only blockchain technology, which is the basis of all cybercurrencies, needs to be explained. “Nobody can really assess the risks, especially not small investors. Even the basics of the technology behind currencies are difficult to understand,” explains the financial expert.
High volatility of cryptocurrencies
There is a risk when trading cryptocurrencies in their extremely high volatility. Price increases as well as drastic declines in value are not uncommon for cybercurrencies, although it is extremely difficult, if not impossible, to predict the direction in which prices will move. 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
Also, keep in mind that digital currencies only exist online and many have no real value behind them. Thus, it can happen at any time that a cryptocurrency completely disappears from the market and that an investor loses his entire investment. Against this backdrop, scams are not uncommon, with initial offerings of hyped coins ending up taking money out of the pockets of yield-hungry investors.
Moreover, the regulation of crypto-assets remains a question mark in many countries. Other countries, such as China, have already decided to completely ban the trading of cryptocurrencies.
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. Moreover, no new coins can be created – unlike fiat money, which in principle could be made available infinitely by central banks. Similar to the popular safe haven gold, the Urcybercurrency is a finite resource. For this reason, the two assets are often mentioned in the same breath to hedge against inflation. In fact, during the last stock market declines, for example due to the corona pandemic or the war in Ukraine, cryptocurrencies have been shown to behave more like risky assets and therefore follow the market trend. .
Secure yourself properly
Despite these various risks, investors can of course always choose to make the bet. However, crypto expert Timo Emden of Emden Research advises the world that beginners protect themselves here: “You should buy multiple currencies to minimize the risk of default.” Moreover, it would pay to think long-term and not expect 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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