Forecast cryptocurrencies: Is the risk calculable?

Reading Time: 8 minutes

Digitization is advancing inexorably in all areas of life. For some years now, it has also been evident in the world of finance through cryptocurrencies. However, only a few people are really familiar with this topic. In addition, cryptos have very high price fluctuations and many people have lost money as a result.

Therefore, in the following article we will show you what exactly cryptocurrencies are. Furthermore, we will go into whether it makes sense to invest money in cryptocurrencies and what you should pay attention to.

The most important information in 30 seconds

• A cryptocurrency is completely digital money
• Each transaction is recorded in the so-called blockchain
• You need a wallet to trade cryptos
• Digital currencies offer great opportunities, but also have numerous risks
• A cryptocurrency forecast is difficult because the market is volatile and the price trend depends on many different factors

Mit dem Laden des Videos akzeptieren Sie die Datenschutzerklärung von YouTube.
Mehr erfahren

Video laden

YouTube immer entsperren

How do Bitcoin and other cryptocurrencies actually work?

Cryptocurrencies are a very young financial instrument that few people understand yet. Any currency that exists exclusively digitally, i.e. as a number on a computer, and secures transactions using cryptography is called a cryptocurrency. The oldest and best known of the digital currencies is bitcoin. In our normal monetary system, banks are needed for transfers. They hold the accounts of the payee as well as the payer and process a transfer.

With a cryptocurrency, the bank is dispensed with as a central instance. Digital currencies are in fact transferred via peer-to-peer system. The remitter and the recipient only need a so-called “wallet” (digital purse) and they can take their cryptocurrencies to any place in the world. Transactions are recorded in a public register or cash book and verified by several computers.

How exactly does a transaction work?

If you want to buy or sell cryptocurrencies yourself or send them to other people, you need your own wallet. This is comparable to your bank account. However, instead of an account number, you get a wallet address. You can buy digital currencies on an exchange by depositing Swiss francs and exchanging them for cryptocurrencies. In the course of the purchase, you need to specify your wallet address as the recipient. If you want to send some of your cryptos to another person, you need the recipient’s wallet address.

What is the blockchain?

You can think of the blockchain as a public ledger. All transactions are stored in it and they are preserved forever. Each block has a certain size. When a block is full, a new block is attached to it, creating a chain, the blockchain.

Where and how can I pay with cryptocurrencies?

All you need to pay with cryptos is a QR code and your smartphone with your wallet. There are still relatively few people who use cryptos as money in everyday life, however, the development is progressing more and more here as well. In Switzerland alone, for example, over 85,000 merchants have been able to accept payments in Bitcoin and Ether for some time.

There are also some Bitcoin vending machines in Switzerland where you can buy Bitcoins and also sell them again for Swiss francs. The SBB ticket machines also have a Bitcoin function.

What cryptocurrencies are there?

The oldest and best-known cryptocurrency, Bitcoin, was developed by Satoshi Nakamoto in 2008. In the meantime, there are countless other cryptocurrencies. The following can be counted among the most important of the digital currencies:

• Bitcoin
• Ethereum
• Tether
• Ripple
• Cardano

New cryptocurrencies are developed or launched almost every day. Mostly, startups use the digital coins to raise capital for a new project. So, they develop a cryptocurrency and then sell it on the market. New cryptocurrencies are also created through mining. In the course of mining, computers solve complex computational tasks and receive bitcoins as a reward, for example.

There is also a distinction between the Bitcoin and Altcoins. Altcoins (= alternative coins) are all cryptocurrencies that were developed after Bitcoin. In addition, there are the so-called “tokens”. They are also digital currencies. However, tokens use an existing blockchain. For example, Tether is a token that uses the Ethereum blockchain.

What distinguishes cryptocurrencies from other currencies and stocks?

The key difference between cryptocurrencies and other currencies and stocks is that they are traded exclusively digitally. It is therefore not possible to hold a Bitcoin in your hand and pay with it in cash in a store. Furthermore, currencies can be multiplied at will. For example, the major central banks printed a lot of new money in the wake of the 2008 financial crisis and the 2020 Corona crisis. This is not possible with bitcoin, for example, because it is limited to 21 million units.

Normal currencies, also known as fiat money, continue to perform certain functions. These include:

• the medium of exchange function
• Function as a unit of account
• Function as a store of value

Many experts are undecided as to whether cryptocurrencies fulfill all three functions. For example, one criticism is that digital currencies are subject to too much volatility and therefore they cannot be a store of value.

In addition, cryptocurrencies are unbacked. So there is no value behind a digital currency and there is no gold peg, as was the case with normal fiat currencies for a long time. On the other hand, if you buy a stock, you become a shareholder in the company. Your stock will go up as the value of the company increases.

Advantages and disadvantages of cryptocurrencies

What are the advantages of cryptocurrencies?

1. There is an above-average chance of return.

Bitcoin and other cryptocurrencies primarily represent a new way to invest money. In recent years, investors have been able to earn high returns by investing wisely. Those who have invested their money in bitcoin since 2008 are now enjoying annual returns of around 230.00%.

2. Digital currencies offer you anonymity and independence

Cryptocurrencies are free from government control. There is no central authority that can block or access the account in case of seizure, for example. The wallet on which your cryptocurrencies are stored is exclusively accessible to you and therefore makes you independent of banks.

3. Bitcoin and altcoins can protect against inflation.

Cryptocurrencies are very volatile, so critics say that they do not offer good protection against inflation. However, while most fiat currencies around the world have lost significant value over the past 10 years, cryptocurrencies have allowed investors to preserve and even increase the value of their money.

4. Trading cryptocurrencies is possible around the clock.

Digital currencies can be traded 7 days a week, 24 hours a day. For this reason, they are very interesting especially for traders. For investors who are long-term oriented, there is a possibility to buy or sell even on weekends or holidays, which is very convenient.

What are the disadvantages of cryptocurrencies?

1. Cryptocurrencies are very volatile and risky.

On the one hand, Bitcoins and Altcoins offer enormous opportunities for returns. However, on the other hand, they are subject to a risk that should not be underestimated. Thus, price drops of 20% per day are not uncommon. In addition, many investors have suffered a total loss by buying the wrong cryptocurrency. This is because the entire market is unregulated.

2. It is a financial instrument that is still very young and little established

In recent years, the cryptocurrency ecosystem has grown a lot. More and more people are now interested in this market. The price trends of various digital currencies are impressive and numerous people have become millionaires. However, you must not forget that it is still a very young and little established market that has a very short history.

3. If you make a mistake, your money will be lost forever.

There is no advice from a bank before investing in cryptocurrencies and you also do not enjoy investor protection in case you become a victim of fraud. If you choose the wrong cryptocurrency or make a mistake when transferring money, your money will be lost forever.

4. You need to protect yourself from hackers and you are your own bank.

If you decide to trade cryptocurrencies, you will inevitably have to deal with the issue of “security”. After all, if you store larger amounts of Bitcoins and Altcoins on your computer, you can become the target of hackers. We therefore recommend that you use a hardware wallet to store your cryptos securely. Because there are also some dubious trading platforms.

Get rich and poor with cryptos

How to make money with cryptos:

1. Invest in mining hardware and become a miner.

You have the option to buy powerful computers and mine cryptos. However, for this you need the right hardware and a lot of experience. Besides, you should pay attention to the fact that the technology is always evolving and hardware that is sufficient today will not bring good returns in just a few months.

2. Actively trade cryptos

Most people make money by trading digital currencies. This means that they buy and sell cryptos. Your goal should be to buy different cryptos when the prices are low. They subsequently sell at a higher rate. In theory, this sounds easy. Unfortunately, you usually never know when the bottom of a bear market is reached. Also, it is only clear in retrospect when the bull market has reached its end.

• Therefore, we recommend that you buy regularly on a monthly basis. This way, you benefit from the cost-average effect and you don’t have to worry about when is the best time to buy.
• Through this approach, the Tesla company, for example, has made a good profit. Thus, the car manufacturer bought numerous Bitcoins and profited from the price increase at the end of 2021.
• However, small investors have also become millionaires with a clever investment strategy, as the example of Dadvan Yousuf shows. He became a crypto millionaire at the age of 17 and continues to be active in the crypto market.

This way you lose money and become poor through cryptos:

1. Not your keys, not your coins – loss control over your own cryptos.

Many investors have lost all their money because the trading exchange they had their digital coins on was hacked. As an example, the scandal surrounding the FTX exchange can be mentioned here. Institutional investors are also affected.

2. You make losses because you trade emotionally.

Numerous people have become poor or lost money by trading cryptos because they were too emotional. Always trade rationally, buy monthly and use bull markets to realize your profits. If you have made book losses, it is advisable to wait patiently for the next bull market and not sell hastily and in a panic.

Trading cryptocurrencies is for savvy investors who are willing to take risks

The cryptocurrency asset class is a very volatile market. Note that although there are very strong price increases. However, there is also the risk of total loss and you have few options to hedge your risk. Additionally, there is a risk that you will make technical mistakes or get hacked. Therefore, the market is suitable only for experienced investors who are willing to take risks. We recommend that you start with small amounts and gain experience before investing larger amounts.

Forecast and outlook

Numerous well-known investors, such as Warren Buffet, have been negative about the future of cryptocurrencies for years. The forecasts about how the prices will develop are basically far apart. While some market participants expect Bitcoin to rise to USD 150,000 and more, others do not expect cryptocurrencies to recover.

The market is very volatile and dependent on too many different factors to make a reliable cryptocurrency forecast. Most experts agree that digital currencies have a future. Uncertainty prevails as to what this future will look like. Last but not least, numerous governments are planning to introduce their own digital currency, for example the digital euro. The exact future is therefore uncertain.