Investing in cryptocurrency: 'The course can suddenly go down'

Cryptocurrency is a risky investment, the Authority for Financial Markets (AFM) earlier this week. The supervisor even draws parallels with the internet soap bubble of the late nineties. Are there really so many risks associated with the bitcoin and ethereum?

Digital money. In fact, it's not even money but technology. Nevertheless, the bitcoin and ethereum are increasingly used as funds. In addition, the prices can be fast. The Norwegian Kristoffer Koch bought for 18.50 euros in bitcoins in 2009, after which he soon forgot his purchase.

Four years later, in 2013, there was a lot of media attention around the digital currency. This reminded Koch of his purchase. When Norway again watched how much its bitcoins were worth it turned out to go over six tons. Completely surprised by the price gain, Koch decided to redeem one-fifth of his digital capital and buy an apartment in a rich neighborhood in Oslo.

Koch is not the only one. Smart, prospective investors can earn the digital coins. Bitcoins and ethereum use the technical system blockchain. Blockchain is expected to be a lot, and its influence on digital money.

The bitcoin cost $ 960 at the beginning of this year, but last Sunday, the digital currency soon exceeded the $ 3,000 value limit. For the Cryptocurrency of ethereal the same applies. Was the digimunt worth 8 dollars this year, this week he drove towards the $ 400.

Numerous causes

The rise in prices of both currencies can have numerous causes, says Block Chain expert Jacob Boersma of Deloitte. "There are, for example, startups that use ethereum to emit their own digital shares, called ether tokens. These startups believe in their backbones in blockchain, and their tokens are rising rapidly in value."

The price increase may also arise because countries suddenly invest in bitcoins because of their own unstable currency situation. "Take countries like Argentina, Bolivia and Venezuela, where inflation is high. A bitcoin can suddenly seem relatively price-sensitive."

Boersma also points out that Chinese traders can use Cryptocurrency to easily transfer large amounts of capital. "When the government blocks such a thing with regular currency, you'll see that some people pass on a deregulated currency."

Strong decline in prices

Both coins have fallen in value last week and it can also be hard. Thus, the rates of both currencies dropped around 20 percent in almost a day on Thursday. Since the coins are not directly linked to the value of a company, investors can see significant fluctuations in prices.

Sometimes the cause of these fluctuations is even in the art. In early 2014, for example, the bitcoin caused a sharp drop in prices due to a technical problem at the popular exchange site Mt. Gox.

Bubble

As long as people continue to buy the coins and continue to pay, they can potentially continue to increase in value. If this does not happen then invested money can quickly evaporate. The AFM therefore proposes that a possible bubble bubble around the crypt currency can arise.

"We see behavior similar to the internet bubble," says AFM spokesman Michiel Gosens. "It seems that many people are afraid to miss the boat due to the huge price increases of recent months." Gosens is wondering if everyone knows enough about the "underlying foundations" of the money.

According to Gosens, the hype could also attract providers with incorrect intentions. "There are currently hundreds of coins, with new ones regularly being added. Many of these coins have low liquidity, which makes them vulnerable to price manipulation." Liquidity is indicated in this case to what extent currency is traded.

No supervisor

Boersma argues that it seems that the price of bitcoin and ethereum is overvalued. "A bubble that the AFM is talking about is indeed on the lookout. The course can suddenly go down." Boersma emphasizes that Cryptocurrency is not an official investment product.

"There is therefore no supervisor that causes abusers to be caught. If someone is using the digital coins consciously for a pyramid game, maybe someone in the United States might be traced." But what if someone lives in South America? "

It is good that the AFM warns about investments in Cryptocurrency , also believes Rutger van Zuidam, founder of Blockchain company DutchChain. "There are many speculators in this market, which can greatly increase or decrease the price."

From Zuidam, potential crypto investors therefore advise to research the world behind the digital coins. "Compare it to bond investments. For example, you look at how a particular country stands for it. In Cryptocurrency it is Important to look at the community. "

Internet bubble

Van Zuidam also thinks that a bubble is possible. He, like the AFM, sees an agreement with the internet bubble of the late nineties. "You saw many companies that were busy with a product that was not yet a marketplace. Investors invested in this."

Something comparable can arise again, Van Zuidam thinks. "You have many innovative companies investing in. However, the question is whether there is already a good business model based on their work. Blockchain is expected to be very big, but the technology is still in its infancy. "

Vanamam emphasizes: The internet bubble period has also delivered successful companies, such as Amazon and PayPal. "If we learned something from the internet bubble, it's important that we go through it."

Risky investment

Boersma compares blockchain with the internet of the early nineties. "See it as a YouTube that would already give out tokens, while the internet could not technically support a streaming system."

Cryptogeld purely as an investment buy is therefore risky, he thinks. "You are speculating on a possible future within a technological system. If you really believe, such an investment is well-founded. However, you now see that people are buying it simply at the rising price, which naturally also involves risks . "