If you follow the economic news, even a little in passing, surely at some point you have heard of bitcoins. The cheap criptomonedas experienced a boom over the past year, which has triggered investor doubts.
With a simple Google search you will realize that you can find all kinds of information about cryptocurrencies, but what is true about the information that circulates on the net?
Let’s see what you have to know before deciding to invest your savings in bitcoins or other cryptocurrencies and whether or not it is a risky investment.
What is a cryptocurrency and how does it work?
Cryptocurrency is nothing more than a virtual means of payment, it is money that lacks a physical format, since neither coins are minted nor bills are printed.
These virtual currencies are generated through open source software and P2P technology, using blockchains to track the transactions made with them.
For practical purposes they work like money, being a means of payment for the exchange of products and services. The main difference is that with cryptocurrencies it is easier to guarantee the anonymity of transactions, which are also outside the control of governments.
Among the most important cryptocurrencies is bitcoin, which during the past year 2018 became very popular. In January 2018 it was not among the cheapest cryptocurrencies to get. In fact, its value shot up so much that it set off all the alarms among the Public Powers.
Benefits and risks
These virtual currencies have their good things and their bad things, we explain them below.
- Payments are made instantly and without intermediaries, directly from person to person.
- Payment is easily made from any mobile and from anywhere in the world.
- The taxes and fees that apply are minimal.
- Lacking regulation, this currency is not controlled by any institution or country.
- Security flaws are not common.
- Privacy is protected to the maximum in each transaction.
- In order to operate with them it is necessary to have Internet access.
- There are many different types of cryptocurrencies and that makes it difficult to manage.
- Quantum computers can pose a risk to your cryptographic security.
- The price is not regulated, it is directly determined by the law of supply and demand.
- In some countries the use of certain virtual currencies is prohibited.
- Its existence is purely digital, so that money is not supported in any way. Due to a hacker attack on the digital wallet or if the file is corrupted, all the money can be lost.
Is it safe to invest in cryptocurrencies?
During the first months of 2018 the price of bitcoin shot up and the fever for cheap cryptocurrencies was unleashed. But time has shown that it was only a speculative bubble. In fact, in December 2018 this currency had lost 84.4% of its value.
numerous media outlets have addressed the bitcoin bubble issue and echoed the bursting of the cryptocurrency bubble.
even the CnMV has ruled on the high risk posed by Initial Coin Offerings (ICO) and cryptocurrencies.
Today, acquiring virtual currencies is not considered a safe investment. There are multiple factors that make it a very volatile and risky market:
- Price is not regulated in any way beyond supply and demand.
- Most countries do not have adequate regulation for this phenomenon and the acquisition of bitcoins and the like is frequently perceived as an attempt to evade taxes or even money laundering. This implies that the Treasury closely follows this type of operations.
- Any security flaw in the virtual wallets that accumulate these currencies can mean that all money is lost.
- The lack of regulation involves a high risk of fraud, especially if the investor does not know much about the subject and risk buying the cheaper criptomonedas without ensuring their real value.
Profile of the investor in cryptocurrencies
The investor in virtual currencies more than a saver is a trader. This is because to make an investment in this type of currency it is important to have a good knowledge of the world of investments and virtual currencies.
In these cases we can speak of a professional investor who has spread his money over various investments. This diversification makes it less risky to acquire cryptocurrencies, since in no case are you dedicating all your savings to them.
This investor knows cryptocurrencies in depth and is aware of both its benefits and the risks it runs. In addition, keep an eye on your investment to assess whether the time has come to withdraw from this market.
Alongside this more professional investor profile is the reckless investor. He is the one who, without allowing himself to be properly advised or having all the information, lets himself be carried away by the “fashions” and fully enters the bubble. This profile is the one that suffers the worst consequences if the market falls.