Investing In Cryptocurrencies And Everything You Wanted To Know About It
Bitcoin, Ethereum, Litecoin and Bitcoin Cash… cryptocurrencies are everywhere in the media. Spectacular success stories and profits running into the millions if not billions have been reported. But is it advisable to invest in virtual money and are digital currencies a new financial instrument?
No banks are required for the payment transactions. Financial institutions are replaced by a decentralized network whose participants manage transactions and generate new units of the currency. This is made possible by the blockchain technology that underlies every cryptocurrency. Even many modern casinos with attractive casino bonus programs accept cryptocurrencies.
HOW DO CRYPTOCURRENCIES WORK AS A MEANS OF PAYMENT?
Using Bitcoin, Ethereum & Co. to buy coffee and toast in the supermarket? This type of payment has not yet become widely accepted, but it is possible in principle.
Using cryptocurrencies as a regular payment system is still quite problematic, as there are no fixed exchange rates, and the rates fluctuate greatly. Meanwhile, cryptocurrencies form a central part of trading. The digital currencies are always on the move, are bought and sold, rise and fall sometimes very suddenly, just like the analogue currencies and shares. But is it still worth investing in these currencies at all, are there enough prospects or is the hype possibly already over? In the following, we will try to give a small overview of the most different currencies and thereby clarify whether investing is worthwhile.
WHY IT CAN BE A GOOD OPTION TO INVEST MONEY IN CRYPTOCURRENCIES?
Anyone can become a participant in this decentralized network and provide computing power to continue the chain of data. This is rewarded by receiving currency units (“coin” or “token”) of the corresponding cryptocurrency. This process is called “mining”.
Once a transaction is recorded in the blockchain, it cannot be changed by any participant. This secures it and individual currency units cannot be used more than once. For this reason, there is no longer a need for established institutions, which have always been intermediaries in monetary transactions up to now.
HOW TO INVEST IN CRYPTOCURRENCIES?
There are several ways in which cryptocurrencies can be turned into money. Similar to foreign exchange trading or forex trading, fluctuations in exchange rates are used to increase money. There are no central banks like the ECB, financial regulators or government regulations to monitor the money supply and intervene when the market heats up. The spectacular rise in the price of bitcoin in 2017 turned cryptocurrencies into objects of speculation and attracted numerous gamblers.
Another option is mining cryptocurrencies. In this case, participants of the decentralized crypto network generate new units of a currency, which they can subsequently sell for a profit. In addition, there are various ways to invest indirectly in digital currencies via the stock exchange. For example, there are Bitcoin futures, with which exchange traders can bet on fluctuations in the Bitcoin.
In Europe, it has recently become possible to invest in crypto ETNs (exchange-traded notes). However, caution: ETN and ETF are not the same. While money invested in an ETF is treated as a special asset and is protected in the event of the ETF issuer’s insolvency, the same is not true for an ETN.
ARE CRYPTOCURRENCIES A GOOD INVESTMENT?
First of all, cryptocurrencies are virtual money, which is traded and created decentral in a network, through the so-called mining. Most of these currencies are not subject to any central bank and therefore offer a high degree of anonymity. Mining is carried out by computers with a lot of computing power, and these PCs solve complex code chains and generate bitcoins, for example. These can then be traded on exchanges, where you can buy or sell Bitcoin, for example.
In principle, it can be said that cryptocurrencies can be compared to stocks. The prices are subject to fluctuations, they can develop stably, rise by leaps and bounds, but also crash again just as quickly. As with any investment, cryptocurrencies also carry risks. The basic rules of investing apply here. So only invest money that you can also lose. Only buy investments that you also understand. When investing, always act rationally, never emotionally. And finally, only sell when you are convinced that now is the right time to sell the cryptocurrency.
WHAT ARE THE DANGERS OF THE CRYPTO MARKET?
Anyone investing in cryptocurrencies should be aware of the immense dangers posed by the young, unregulated market. So far, no one can predict with certainty how virtual currencies will develop.
Especially when trading, there is always the risk of a total loss, because the market value of a cryptocurrency is based solely on demand and can drop to rock bottom at any time. So, you should only invest if you can also do without the invested capital.
The fact that cryptocurrencies are inherently beyond any regulation by states also consequently means that there is no investor protection whatsoever. Be aware that no one will tell you about the risks of your trading and inform yourself in detail.
CONCLUSION
Cryptocurrencies hold a lot of potentials. However, no one knows at the moment what role cryptocurrencies will play and whether any of the more than two thousand that currently exist will particularly stand out.
However, the increasing digitalization has brought forth other forms of investment besides cryptocurrencies. One of these is real estate crowd investing, which combines a classic investment instrument with a digital platform. By using the platform, private investors can invest quickly and easily. So, there are many investment opportunities in the finance market which are connected to cryptocurrencies.
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