Bitcoin: High, higher, total crash?

Bitcoin is currently bringing investors joy above all else. In its wake, the best-known digital currency is dragging hundreds of other cryptocurrencies ever higher. But how substantial is the development?

Cryptocurrencies

“No, we don’t have a crash here,” Julian says in his latest video on YouTube, reassuring his 100,000 subscribers after bitcoin’s recent slide. ″Such setbacks are quite normal and it may even wash out this hype″, says the self-proclaimed Austrian crypto explainer, who explains the world of digital currencies from Singapore. Hosp is a former professional kite surfer and sees himself as an investor and advisor. By his own admission, he holds many coins – as the various digital currencies are called in the crypto world. But his biggest project is his own digital currency, with which he wants to make money flows such as loans, payment systems and stock trading accessible without middlemen.

A recent price slide in bitcoin of almost 20 percent is already routine for Hosp, he explains in his video. But on balance, the 34-year-old has probably profited well from the hype surrounding digital currencies. Bitcoin, in particular, has increased more than sixfold since its low in March 2020. Anyone who bought Bitcoins as recently as December of last year can now look forward to seeing their value double. The situation is similar for other digital currencies. The largest after Bitcoin is called Ethereum. But names like Ripple, Litecoin and Cadano are also making the rounds. The list of all cryptocurrencies is long. Bitcoin still unites the most invested money.

Symbol of the digital transformation

But why, apart from extravagant crypto preachers like Hosp, are more and more people believing in the blockchain and putting their money into a completely dematerialized product? After all, behind digital currencies there is often not much more than sophisticated code that, in the case of Bitcoin, for example, enables financial transactions to be carried out quickly, anonymously and cheaply.

Socially, one could argue that the hype represents another step in the digital transformation accelerated in the pandemic. The column of numbers is becoming a tangible commodity for some. The fact that confidence in digital assets is on the rise is also shown by the stock prices of technology companies, which have climbed to dizzying heights in – or as a result of – the Corona pandemic.

A new asset class for strong nerves

For Sören, an economist and crypto analyst at DZ Bank, the reasons lie primarily in the expansionary monetary policy of international central banks. What he means: there is a lot of money on the market and interest rates will hardly be available in the longer term. “Investors now see themselves forced to consider more unusual asset classes,” Hettler writes when asked. Bitcoins are still extraordinary. For example, the value of all Bitcoins on the coinmarketcap.com platform was $640 billion. That sounds a lot, but in comparison it is somewhat less than the stock market value of the at least equally hyped electric car pioneer Tesla.

But in addition to crypto freaks, institutional investors are also increasingly jumping on the Bitcoin bandwagon. Patrick Hansen of industry association Bitkom, for example, believes that Bitcoin’s price rise is also due to the fact that ″companies and investors are shifting their capital reserves into Bitcoin″, according to Hansen.

This includes more and more reputable companies such as insurance company MassMutual and asset manager One River, which recently acquired $600 million worth of Bitcoins. Meanwhile, one asset manager also owns the most Bitcoins worldwide: Graytrust from New York combines almost three percent of all available Bitcoins. In a video on its website, Graytrust promoted the benefits: Gold bars fall from the sky, people pull on them, there are distribution struggles. The message: digital currencies are safer than physical gold.

Common comparison: bitcoin and gold

The comparison between bitcoin and gold is often used to explain digital currency. Both are limited in quantity as a resource. That’s how inventor Satoshi Nakamoto intended it in Bitcoin’s code. But gold has long been accepted worldwide as a store of value (“safe haven”). Bitcoin is still a long way from widespread acceptance – which partly explains the massive price fluctuations.

  1. While excavators and miners move tons of rock for a gram of gold, bitcoin requires large computers and a lot of electricity to ″grave″ the coins.
  2. As a result, a kind of minimum price can be calculated – similar to gold – so that the costs are covered, says Sören Hettler of DZ-Bank.
  3. In my opinion, a really convincing model that can be used to calculate an appropriate price ″does not currently exist,″ the blockchain analyst said. “Cryptocurrencies are worth what others are willing to pay for them.”

Another reason for the growing interest is access. While it used to be possible only for tech nerds to buy cryptocurrencies and store them on their phones or computers, that’s becoming easier, too. The best example is payment processor Paypal, which announced in October that its customers in the U.S. can buy and sell bitcoin and three other cryptocurrencies. Worldwide, Paypal has more than 350 million customers – many of whom may soon be dealing with digital currencies for the first time.

Black sheep in the crypto jungle

However, cryptocurrencies have so far continued to be one thing above all else: a gambler’s property that has brought big profits to some and massive losses to others. As with any growth market, this also attracts black sheep. Bitcoin is also repeatedly criticized because it enables criminals to carry out transactions via the blockchain. The example of the digital currency Ripple also suggests that there are people at the controls of the coins who are primarily interested in increasing their own capital. Shortly before Christmas, the US Securities and Exchange Commission filed a lawsuit against Ripple and two of its founders. The accusation: transactions of 1.8 billion dollars are said to have not proceeded in a regular manner. The trial will take place in February.

The blockchain expert at the digital association Bitkom assumes that of the thousands of cryptocurrencies, “the vast majority have no long-term raison d’être.” However, financial regulators would keep a very close eye on the larger digital currencies.

Crypto explainer Julian Hosp is not without controversy either. For example, there are reports on the web about insider trading at a failed startup. In any case, Hosp continues to back digital currencies. He is not afraid of a crash. After the sharp drop in the value of the Bitcoin, he sees “the healthy downward correction” above all, a favorable opportunity to buy Bitcoins. Currently, everything indicates “that it will continue to go up,” Hosp said in one of his videos.

For DZ Bank expert Sören Hettler, it’s mainly the expectation that “people’s openness to cryptocurrencies and thus their general acceptance by the public will increase.” However, whether the current Bitcoin rally is another bubble “cannot be said at this point in time.”

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