Be Aware of the Risks: Attention Small Investors: Beginners should know this about crypto investments in Bitcoin, Ethereum & Co. | newsletter

• Cryptocurrencies are growing in popularity
• Online brokers facilitate entry into the cryptocurrency market
• Several risks should be considered

Cryptocurrencies are becoming more and more popular. While cryptocurrencies were originally seen as a decentralized, independent, and cross-border means of payment, they are now in particular demand as assets that long-term investors hope will yield a healthy return. No wonder, after all, that the original electronic currency Bitcoin was worth only 0.08 US cents at the time of its creation. The price is currently more than 41,000 US dollars. The previous record is just under $69,000 USD.

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As written by crypto payment company TripleA, in 2021 there were more than 300 million crypto users worldwide. According to financial economist Hartmut Walz, the fact that more and more people are deciding to enter the cryptocurrency market is also due to the fact that they will suffer from FOMO, that is, the fear of missing out, he told the German news agency DPA.

The road to cryptocurrency just got easier and easier

In addition, it is now easy to get cryptocurrencies. There are now many brokers that facilitate the trading of digital assets for small investors. In the past, it was usually only possible to buy cryptocurrencies through foreign exchange places and then had to transfer it to your own wallet, as this process can be quite complex and difficult to understand, especially for newcomers. However, with the new offerings of trading apps, this process is now much easier. Cryptocurrencies can already be purchased with a click or swipe, which is instantly managed in the appropriate wallet at the broker.

Risks should not be underestimated

However, the simplicity of acquiring cryptocurrencies should not hide the fact that cryptocurrencies are still a high-risk investment. As Walz sees it this way: “It’s a killer signal that buying cryptocurrencies is getting easier and easier. It’s targeting the wrong target groups,” Die Welt newspaper quotes him. Finally, when investing, the principle should always be followed, do not buy anything incomprehensible. Only tech geeks should be able to understand and evaluate what really lies behind the many cryptocurrencies available now. After all, many investors would stumble if only blockchain technology, which is the basis of all electronic currencies, was explained. “No one can really assess the risks, especially not small investors,” says the financial expert. “Even the fundamentals of the technology behind currencies are hard to understand.”

High volatility in cryptocurrencies

There is a risk when trading cryptocurrencies with their extremely high volatility. Rising prices as well as massive losses in value are not uncommon for cryptocurrencies, 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 cause double-digit price jumps or losses.

Total loss of value not excluded

In addition, we should not forget that digital currencies only exist online and many of them have no real value behind them. Accordingly, the cryptocurrency can completely disappear from the market at any time and the investor will lose his entire investment. In this context, scams are not uncommon, with initial coin offerings eventually taking money out of the pockets of returns-hungry investors.

In addition, 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.

Cryptocurrencies are somewhat unsuitable as inflation protection

In addition to the high return, some investors also hope to protect their portfolio from inflation by holding cryptocurrencies. After all, Bitcoin, for example, is a payment method whose quantity is limited to a total of 21 million coins. In addition, new coins cannot be created – unlike paper money, which in principle can be supplied endlessly by central banks. Similar to the famous safe haven gold, Urcyberdevise is a finite resource. For this reason, the two origins are often mentioned at the same time to guard against inflation. Indeed, during recent periods of downturn in the stock market, for example due to the Corona pandemic or the Ukraine war, cryptocurrencies have been shown to behave like risky assets and thus follow the direction of the market.

Insure yourself properly

Despite these various risks, investors can of course still choose to bet. However, crypto expert Timo Emden from Emden Research advises the world that beginners should protect themselves here: “You should buy several coins to reduce the risk of default.” In addition, it is useful to think long-term and not hope for quick gains. If someone is willing to take the risk, nothing stands in the way of investing in cryptocurrency.

finanzen.net editorial office

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