Cryptocurrencies such as Bitcoin and Ethereum are reaching spectacular record prices, which in turn entice more people to get involved. Getting started is not difficult, but before you invest your hard-earned money in high-risk cryptocurrencies, you should weigh carefully. In an interview with c’t, editor-in-chief Hermann-Josef Tenhagen and investment expert Hendrik Buhrs from the editorial team of the Internet guide Finanztip explain why Bitcoin is not suitable for investment in their opinion. And they also look at the planned digital currencies.
c’t: Who do you recommend investing in Bitcoin and other cryptocurrencies?
Hermann-Josef Tenhagen: Recommend? No one. Of course, if you want to try your luck with money that you absolutely don’t need and learn about blockchain technology and the nature of speculation in the process, you can. And because not so few – perhaps for other reasons – use their money that way, we have in a guidebook written down how to avoid the grossest blunders.
Where does your skepticism about Bitcoin and Co. come from?
Tenhagen: Cryptocurrencies like Bitcoin are not suitable as a classic financial investment with the idea of increasing the capital invested with some degree of security or even for retirement provision. Parking my money there so that it bears fruit for the next 30 years and then finances my own pension, I would not take this risk with Bitcoins, for example.
Hendrik Buhrs: I don’t see any need for the average investor to resort to cryptocurrencies. The defensive part of your investment comes in the bank. There you can be sure that your investment amount will be returned exactly when you need it. “Quasi-exact” means: plus 0.5 percent interest or minus 0.5 percent fee, but on the whole safe and accessible. The offensive part, with a little more risk, lies in a globally invested, cheap equity fund, such as an exchange-traded index fund (ETF). It is growing in parallel with the global economy and should also trump inflation. These two pillars are sufficient for a long-term investment.
What are the biggest risks with cryptocurrencies? How do you see this in comparison to other investments such as classic stocks or investment funds?
Tenhagen: Bitcoin and other cryptocurrencies are per se risk. We have calculated that Bitcoin has been 15 times as volatile as an ETF on the MSCI World over the past five years (Finanztip podcast on Bitcoin, including high volatility). This also made it significantly more volatile than a classic individual share. The greatest risk, of course, is that the value is only based on agreements between the private users of the blockchain behind it. Bitcoin & Co. can lose this value if the protagonists find another way to invest money, if the security systems do not hold up in the end, or if large players take advantage of the system – be it by transferring the money collected from a loan to a port outside the Transfer the reach of well-meaning users or manipulate the blockchain as a majority.
And what opportunities do you see in such currencies?
Tenhagen: Bitcoin is not needed in well-organized democratic states. It is a different matter when one’s own state system does not work and hard-earned money is taken away by political decisions in a dictatorship or made worthless by inflationary regimes. Then I can well understand that investors are fleeing to a supposedly international investment that they can take with them across the border on a USB stick or even with just a memorized password.
Buhrs: The motive of state failure has also driven Facebook with its cryptocurrency idea – and that’s why the group primarily thought of using it in less developed countries.
Tenhagen: In fact, that is also the reason why very legal organizations critical of the state such as Wikileaks use crypto currencies as well as the campaigns of Alexej Navalny or, at the other end of the spectrum, criminal organizations.
Which legal and tax hurdles have to be considered?
Tenhagen: For example, anyone who buys and resells bitcoins and makes a profit has to pay tax on them in the first year – at least if the profits exceed 600 euros. Once the year is over, speculative profits with Bitcoin are tax-free.
Buhrs: It is also important to keep the receipts – for the purchase of the bitcoins and, if necessary, for a transfer to another platform. If at some point you want to exchange the bitcoins back into euros, you are prepared for queries from the bank or tax office and can explain the origin of the money to them.
What do you think of cryptocurrency derivatives, such as contracts for difference (CFDs) or comparable products?
Buhrs: If I am convinced of a type of investment, then I should buy it as “pure” as possible. A derivative always switches on a further intermediate level, including the risk of default. These potential disadvantages should be countered by a pro-argument – but I don’t see that with derivatives on the common cryptos. Buying a piece of real Bitcoin is no more complicated than the CFD or the certificate on it. If you want to add to the thrill of fluctuating prices, leverage products are probably the right product. If you love the independence of the blockchain idea, a derivative doesn’t fit in at all.
To what extent do you think a future expansion of the “crypto” concept to other forms of investment such as stocks or bonds is conceivable?
Buhrs: Fragments of a Tesla share are already available as a crypto product. But here, too, I remain a purist. I prefer an original share that is in my name with an established central depot. However, development is in full swing here too. The stored documents can theoretically be replaced by decentralized entries. A law to introduce electronic securities is in the making in the Bundestag. For small investors who buy a batch of shares in the MSCI World every few months and leave them in the depot until they retire, I lack the practical advantage.
Let’s look further: Where do you see the importance of cryptocurrencies in five or ten years?
Buhrs: I do believe that the concept of cryptocurrency will endure. But whether that means that Bitcoin will continue to dominate the market or that technical developments are pushing other variants forward, I could only speculate. And that’s exactly why I find it difficult to ask whether normal earners should invest an annual salary or even their pension reserves in this area. My ETF portfolio with 1,600 individual companies from all over the world calms me down a lot more.
Tenhagen: I find blockchain technology fascinating, and it is sure to last. But I am skeptical per se about an artificial currency that turns its rejection of state structures into a program. Quite apart from the question of whether another variant would then be preferable. Bitcoin is currently making a lot of dirt through mining and polluting the environment.
How do you see corporate cryptocurrency projects like Facebook’s “Diem”?
Tenhagen: One should realize that Facebook and other private companies are not Caritas. If they set up a currency, it must also be worthwhile for the owners.
What advantages and disadvantages do you see in government projects such as a digital euro?
Buhrs: What a digital euro would look like in concrete terms is still unclear. Both the European Central Bank and its counterparts in other countries are currently brooding over prototypes and studies. In some places the concept is exactly the opposite of Bitcoin, namely central instead of decentralized. An important prerequisite for the acceptance of an e-euro is that it does not bring any new imbalance into the financial system. In any case, a digital euro could expand the competition between different payment options. First of all, that’s a good thing for consumers. The additional costs of everyday payments would tend to decrease. The Bahamas recently got a digital version of their dollar. There you will be able to gain experience in everyday life, albeit in a comparatively tiny economic area.
Tenhagen: If paying as a process becomes cheaper, that’s a good thing. Again, my skepticism towards Bitcoin: I don’t know how paying with this energy-intensive construct will actually become cheaper in the long term.
In c’t 11/2021 we examine the opportunities and risks of crypto money. We will also show you how you can improve the sound in video calls, we have tested 4K monitors with USB docks and desk attachments for the home office and software for club management. You will learn how to set up the Raspi in a flash, remove noise from photos using AI and enrich Google’s Street View with 3D photos. Issue 11/2021 is from May 7th in Heise shop and available at the well-stocked magazine kiosk.