DeutschIn recent years, cryptocurrency prices have been on a roller coaster. Many people have lost a lot of money in the process. Others have become rich as a result. In this article, we reveal what investors need to know about cryptocurrencies and what to consider when choosing a crypto exchange.
The Risk of Cryptocurrencies
In 2017, cryptocurrencies, especially Bitcoin, experienced a real hype. At the end of 2017, Bitcoin, the best-known of all cryptocurrencies, reached its highest value to date at almost 20,000 US dollars. A short time later, the price slump began. 2018 became the black year for cryptocurrencies. In the meantime, the market has recovered a bit. The current price of Bitcoin is just under USD 9,000. Click here for the current price chart.
These extreme price fluctuations quickly make it clear that investing in Bitcoin & Co. involves a significant risk. The market is extremely volatile and unpredictable. That is why many people have respect or even fear of investing in cryptocurrencies. Others, on the other hand, find it almost magically attractive.
Some risk-loving investors would not even shy away from taking out a loan to invest the money in promising cryptocurrencies. This is because installment loans can nowadays be granted by special credit institutions even without obtaining a Schufa credit report. This lowers the inhibition threshold for applying for a loan, for example from one of the banks in the loan without Schufa comparison. However, taking out a loan for investment purposes is strongly discouraged. Especially when it comes to a highly speculative investment such as cryptocurrencies.
The Idea behind Cryptocurrencies
The idea behind the development of cryptocurrencies is actually ingenious. The goal was – and is – to create an independent, electronic payment system from states and central banks. A monetary system that does not require banks, for example, enables fast money transfers at low costs.
The basis is a decentralized database, which is managed by the participants. In the so-called blockchain, all valid transactions are stored on all Bitcoin nodes. The use of cryptographic techniques prevents the coins from being issued multiple times. The price of cryptocurrencies is formed, as on the stock exchange, by supply and demand. New coins can only be “mined” by solving complex cryptographic calculation tasks. More information on how Bitcoins are created is available here.
The Areas of Application of Cryptocurrencies
In order to be able to pay with cryptocurrencies, you need a so-called wallet, a digital wallet. These are usually provided by the providers as desktop and web applications. An internet connection is required to access the wallet. The problem with such digital wallets is that they can be exposed to hacker attacks. The alternative hardware wallets are safer.
Despite these security problems, cryptocurrencies are becoming more and more established. In the meantime, some, especially American companies, already recognize Bitcoins as a means of payment or plan to do so in the future. For residents of inflation-ridden countries, investments in cryptocurrencies also offer protection against inflation.
The Advantages of Cryptocurrencies
Despite some risks that cannot be dismissed, investing in cryptocurrencies also offers advantages.
- Inflation protection: Due to the limitation of cryptocurrencies, the risk of inflation is very low.
- Security: The transaction data of the trades are stored decentrally. And on different, independent computers. Each transaction can be verified in this way.
- Anonymity: When buying and selling cryptocurrencies, investors remain largely anonymous.
- Intended use: Cryptocurrencies serve as a means of payment and as an investment.
- Price development: The prices of cryptocurrencies are extremely volatile. Due to their high price fluctuations, they offer the possibility of high price gains.
What are Crypto Exchanges?
Crypto exchanges are marketplaces on the Internet where cryptocurrencies are traded. They are therefore comparable to stock exchanges, but only exist in the digital world. On a crypto exchange, investors can buy cryptocurrencies, for example against euros or US dollars. In some cases, cryptocurrencies can also be exchanged for each other. As on the stock exchange, transaction fees are charged for a purchase or sale.
But trading cryptocurrencies is complicated. This is because not every cryptocurrency can be traded on every crypto exchange. Anyone who wants to invest money in cryptocurrencies must therefore be clear in advance which currency he wants to trade (“trade”). Accordingly, he must open an account with a crypto exchange where the desired currency is traded. Well-known crypto exchanges are, for example, Bitcoin.de, Bitpanda and Bittrex.
At the beginning of last year, a new player joined the crypto exchanges: The Stuttgart Stock Exchange entered the unknown parquet floor of trading cryptocurrencies. This made the first operator of a German stock exchange enter the trading of cryptocurrencies. Their market entry was approved by the Federal Financial Supervisory Authority (BaFin).
With Bison, the Stuttgart Stock Exchange’s app for trading cryptocurrencies, the stockbrokers want to make trading cryptocurrencies easier and take away people’s fear of it. For example, when using the app, it is no longer necessary to open a digital wallet, which is often associated with considerable effort at other crypto exchanges.
Recently, Bitmeister has also been offering its services for trading cryptocurrencies. Behind this is a Berlin start-up. Like the Stuttgart Stock Exchange, Bitmeister also aims to simplify trading in cryptocurrencies and make it accessible to everyone. An account can be opened here within 15 minutes – according to the promise of the founder Leonard Zobel. Like the Bison app from the Stuttgart Stock Exchange, Bitmeister was also approved by BaFin.
What should You Pay Attention to when Trading on Crypto Exchanges?
- Fees: Often a percentage fee per transaction is charged for a trade. The amount of the fee is decisive. In addition, there are different prices for buying and selling. The closer these two prices are to each other, the better for the buyer.
- Liquidity: A large number of users ensures high liquidity of the crypto exchange. Therefore, attention should be paid to the fact that there are as many buyers and sellers as possible on the chosen marketplace.
- Custody: If the custody of a cryptocurrency is only possible in the digital wallet, this poses a security risk. Therefore, attention should be paid to the fact that storage is also possible on hardware wallets.
- Currencies: Which cryptocurrencies can be traded on a crypto exchange is decided solely by the crypto exchange itself. For the selection of a suitable crypto exchange, it is therefore essential to know in advance which cryptocurrency you want to buy.
- Partner banks: For the trading of cryptocurrencies against conventional currencies, such as euros and US dollars, a transfer is first made to a clearing account at the crypto exchange. For this, it works together with a conventional bank. It is important for investors to know which partner bank this is and up to what amount their deposits are protected.
Investors should Choose a Crypto Exchange with Care
Trading Bitcoins offers great opportunities but also considerable risks. Anyone who is interested in trading cryptocurrencies should find out in advance which crypto exchange is best suited for them. There are sometimes considerable differences between the long-established market leaders. A good alternative is new crypto exchanges, such as the Bison app from the Stuttgart Stock Exchange. Due to the high volatility of these currencies, it is a good idea to start trading cryptocurrencies with a small amount of money at first.
