Is Bitcoin in the fast lane? An interview with Thomas Götz
Bitcoin is by far the biggest and best-known cryptocurrency in the world and every so often is seen as an attractive financial investment. After a turbulent year, Bitcoin has reached a new record high, growing from about 8,000 US dollars at the beginning of 2020 to its current value of over 30,000 dollars Is Bitcoin really worth it? We asked Thomas Götz from PostFinance what it means for private investors.
Can you briefly and simply describe what a cryptocurrency is and why it exists?
A cryptocurrency is a completely digital currency. The money exists solely as data, not as coins or bank notes. The advantage of this is that it can be transferred online very easily.
These currencies are called cryptocurrencies because a cryptographic process is used to prevent forgeries. Cryptography is the study of information encryption and security, and uses mathematical and IT processes.
Like a conventional currency, a cryptocurrency serves three basic functions: you can pay with it, you can save it and you can use it to measure the value of things.
The most popular cryptocurrencies, such as Bitcoin and Ether, are special because they are issued by private groups rather than a country's central bank. They are generated and managed by autonomous machines across the globe – a blockchain – so they don't need a single, trustworthy institution to work. Unlike traditional banking systems, cryptocurrencies can be used anonymously.
Bitcoin was launched in 2008 as a response to the global financial crisis. A “money without government” was created because so many banks, central banks and supervisory bodies had proven themselves untrustworthy.
What do people need to be careful about with cryptocurrencies, and what are the dangers involved?
- There are all kinds of cryptocurrencies with different properties, and their founders all have different intentions, from trying to create a money system that can't be manipulated, to pyramid schemes and other forms of fraud. These cryptocurrencies are operated independent of governments and are meant to bypass supervisory authorities and central banks, along with the advantages (protection from misuse) and disadvantages (manipulation) that these provide. Regulations have, however, started to affect cryptocurrencies as well. For example, any cryptocurrency owned must be declared in your tax return.
- It is definitely worth looking closely at a cryptocurrency:
- Who created the currency, why did they do it, how is it operated and developed?
- What security measures are used, and have these been examined by independent experts?
- How well-established is the currency and the blockchain that it's based on in practice?
- How much new money is created by the cryptocurrency, how is it created and how is inflation controlled?
- Trading cryptocurrency is not as well-established or regulated as trading classical currencies.
- The exchange rate of cryptocurrencies is normally not connected to other currencies, which means that it's heavily influenced by events and is therefore very volatile.
- With a non-governmental cryptocurrency, there is no guarantee that it will still exist tomorrow.
Will cryptocurrency become an established financial instrument?
Cryptocurrencies are interesting for many reasons. For example, they are not subject to the same influencing factors as other assets, which means that they can help to hedge risks more broadly. Cryptocurrencies, like all digital assets, have the advantage that they can be directly and immediately transferred, so there are no counterparty risks (provisions for doubtful accounts – money for goods)
Bitcoin currently has a market capitalisation of USD 650 billion, and the entire cryptocurrency market has a volume of USD 1 trillion, a respectable size.
Why is there so much press about Bitcoin at the moment, and why is there so much demand?
Bitcoin has always generated a lot of public interest, be it through its astonishing price fluctuations and people getting rich from it, or people losing a lot of money because they lost their cryptographic key.
Which businesses are investing in Bitcoin at the moment?
The soaring value of Bitcoin currently observed has probably been caused by professional investors looking for new assets to hedge risks and to gain returns. In August, a listed firm bought USD 250 million in Bitcoin and it's rumoured that Elon Musk is interested in buying an even larger amount of Bitcoin.
Should individuals also invest in Bitcoin? Should I invest in cryptocurrency now, or keep waiting?
Bitcoin is a speculative, highly volatile investment, and for people who want to gain experience, a cryptocurrency like this is an opportunity to do so. However, in doing so, it is necessary to be able to accept a possible total loss of the entire investment. Every investment means weighing up the opportunities and risks, and I can't give a general recommendation on which risk is acceptable for whom.
What does Bitcoin mean for retail in Switzerland? Can you give us a forecast?
Bitcoin was originally intended as a payment system, but today it is unimportant in retail. Transaction fees are significantly higher than those for many other payment systems. Despite impressive market capitalization, Bitcoin has a niche position in the field of investment.
Central banks have been trying to use crypto banks for a while now, and big technology companies like Facebook are also active in this field. It's exciting to watch these developments and see what opportunities come of them.
Thank you very much for your valuable input and all the best.
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