Cryptocurrency experts say the most important rule for Bitcoin investors is “be prepared to lose everything”.
As of early May, Bitcoin has had a jump of more than 600%, from around $ 7,000 a year ago per Bitcoin to $ 54,000 this week. At the same time to be one of the best performing financial assets in 2021.
While there have also been many negative price movements, this year-long rise has attracted more and more investors, despite concerns about a repeat of the Bitcoin bubble in 2018.
Profit amazing Bitcoin is making people skeptical of cryptocurrency and even the most fastidious people also think about pouring money into the digital currency.
Jamie Dimon, CEO of JPMorgan Bank, once called bitcoin a “scam” and said the virtual currency bubble will end worse than the bubble of tulips in history.
However, at the present time, the CEO sees the difference between Bitcoin and the blockchain technology behind the digital currency, which he thinks could be very useful.
There is also Elon Musk, the head of Tesla, and a handful of large hedge fund managers who also believe Bitcoin as a digital equivalent of gold. Bitcoin’s exchange rate against conventional currencies went even higher.
The stellar performance recently has caused many to take a positive outlook on Bitcoin. However, there are still fierce opponents and warn that “a bubble even bigger is still a bubble”.
Does this time really different?
Since the beginning of January, the value of Bitcoin has risen 85%, and by mid-April it has hit a record high of $ 65,000. Cryptocurrency companies are attracting large amounts of money.
According to research from broker Charles Schwab, young people are the pioneers of Bitcoin investment. In the UK, millennials and millennials are more likely to buy cryptocurrencies than stocks. And more than half (51%) of those surveyed said they have traded cryptocurrencies. In contrast to young investors, among those 55 and older who participated in the survey, only 8% traded cryptocurrencies.
After a year of uncontrolled price increases, many experts warned of the growing danger of a 2018-style crash. But Bitcoin bulls argue that the current bull run is different from the 2018 bubble, when prices collapsed from over $ 16,000 to just $ 3,000. Because at the present time, Bitcoin’s price is supported by demand from professional trading companies and stable institutional investors.
In fact, investors globally have lost more than $ 16 billion since 2012 in crypto-related scams and frauds (according to Xangle). The UK’s financial regulator, the financial regulator, has also warned this year that investors could lose 100% of their money by betting on cryptocurrencies. These agencies, while not seeking to block cryptocurrency transactions, have banned the sale of derivatives of crypto assets to UK retail customers.
Since the crypto market is unregulated, investors won’t get any support if they fall victim to it. Exchanges can “evaporate” at any moment, and their founders will disappear.
Scammers are on the rise, and one of their tricks is to ask investors to deposit private keys into their crypto accounts, promising a return of profits.
Ian Taylor, chief executive officer of lobby group CryptoUK, said: “There are a lot of scams and criminal activities aimed at individuals and it’s important to realize that in a market that is not control has no recourse. ”
Another concern for investors is the environmental footprint of cryptocurrencies. According to Bank of America research, a $ 1 billion investment in Bitcoin generates the same carbon emissions as 1.2 million gasoline-powered cars over the course of a year. Because these coins are created or “mined” in large computer centers where electricity is burned and heat is generated.
The basic rules of investing Bitcoin?
Cryptocurrency experts say the most important rule for investors is “be prepared to lose everything”.
On April 13, Bitcoin started to plummet, losing 23% in less than two weeks. Marcus Swanepoel, the chief executive of Luno, a retail-focused cryptocurrency exchange with more than 5 million customers, says that in some cases, customers are overspending themselves. According to a survey of this exchange, 55% of customers do not have any other investment.
Swanepoel warned investors: “Never spend more than you can afford to lose.”
Most mainstream investment analysts believe that strong fluctuations in prices mean that the amount of capital spent to hold cryptocurrencies should be kept at a low percentage in the portfolio.
Thanos Papasavvas, founder of ABP Invest research group with 20 years of experience in asset management, said: “I understand you want to buy it because you believe the price will go up but make sure it’s a very small part. in your portfolio, be it 1 or 2%. ”
Besides, the use of leverage will increase profits but also inflate losses.
“Leverage on a crazy asset class is a recipe for disaster,” said Abhishek Sachdev, a derivative expert and head of Vedanta Hedging.
Choosing the right digital currency to invest in is also very important. There are hundreds of cryptocurrencies, most of them worthless and some of them simple scams. Bitcoin is the oldest, most liquid currency, and also the one that receives support from institutional investors due to its limited supply.
As can be seen, since central banks around the world have been coping with the Covid-19 epidemic by loosening monetary policy, major asset managers and hedge funds have been finding ways to protect yourself from the return of inflation and erosion in the value of several currencies, including the dollar.
About $ 54 billion has been invested in 120 cryptocurrency funds, said James Butterfill, investment analyst at Coinshares; Much larger than the $ 3.5 billion figure for 89 funds a year ago.
Christian Nolting, global investment director at private international bank Deutsche Bank, wrote in a report: “Central banks are even exploring the idea of issuing digital currencies. For some analysts, central bank digital currencies have legitimacy for the crypto space. While others argue that this is an attempt by central banks to regain control of the market”.
According to Randy Kroszner, professor of economics at the Booth School of Business at the University of Chicago: “Central banks have always thought that they are the key to the payment system. And now they realize that was not the case. But that doesn’t mean that the risks of cryptocurrencies will disappear anytime soon. When the market is not controlled through price movements, it is difficult to have stability and safety.”