Stories
Stories
Podcast
26.2.2021
Stefan Thomas is a man in demand at the moment. The German thirty-something is a successful IT entrepreneur in San Francisco. And yet this fact is not the reason why the media, from the New York Times to the Augsburger Allgemeine, are reporting on the programmer. The reason is that Thomas had a wealth of over 200 million US dollars at times, which he cannot access. Thomas owns 7,002 Bitcoin, units of a cryptocurrency that has been keeping the financial markets in suspense for months with dizzying price explosions. But he has forgotten the access data to his digital wallet, where the wealth is stored.
This makes him one of the more unfortunate of the many Bitcoin millionaires on the planet. It is not clear exactly how many there are. Thanks to Bitcoin's decentralized structure, it is possible to track exactly how much is in which crypto wallets. However, the wallet owners are anonymous, so it is also possible that one of them owns several million wallets.
In November last year, there were a good 25,000 of these wallets worth millions. In mid-February 2020, there were even around 40, representing billions in assets. The largest of these contained 141,452 Bitcoin, which was equivalent to around seven billion US dollars at the time.
Such sums are now also attracting traditional billionaires, such as Elon Musk. Musk, godfather of the global car industry, intimate enemy of all short sellers and self-proclaimed Mars colonizer, has been cheering cryptocurrencies for several months, especially the well-known Bitcoin, but also the rather obscure Dogecoin at times, which he has apparently turned away from again.
Cryptocurrencies are therefore one of the hottest assets on the global financial markets. Over the past year, the value of Bitcoin has risen by over 300%, and one Bitcoin is now worth 50,000 dollars. Alternatives such as Ethereum (+500%) and Ripple (+80%) have also seen huge price rises.
However, some experts consider this boom to be a bubble, including the British Financial Services Authority, which warned investors not to invest in cryptocurrencies as they could otherwise lose all their money. This was the case during the first crypto boom in 2017: Bitcoin reached a new high of almost 20,000 US dollars at the time, only to collapse completely within a short space of time to a price of around 5,500 US dollars at the end of 2018. Many people lost a lot of money, with some people taking on huge debts to cash in on the hype. Major banks such as JPMorgan Chase and Citigroup even banned their customers from buying Bitcoin by credit card.
Could such a price collapse happen again? Or have cryptocurrencies come to stay this time? There are indeed many indications that they will continue to play a role in the global financial market in the future. After all, digital money is no longer just a playground for nerds; even major payment service providers such as PayPal or Mastercard and most major banks are getting involved in the crypto market. And the once so critical major bank JPMorgan Chase even expects a price of USD 146,000 in the future, around three times the previous high.
The sudden success is mainly due to the fact that the perception of cryptocurrencies has shifted. "For many investors, Bitcoin and co. are a store of value and not a means of payment," explains Timo Emden. He analyzes the cryptocurrency market with his company Emden Research and believes that the current boom is not comparable to that of 2017. The drivers are different this time, "otherwise Bitcoin would have bounced off the 20,000 dollar mark again". He sees two reasons why the rise has exceeded this previous high: "Firstly, regulation is better today than it was three years ago, and secondly, there are also many institutional investors involved who want to take advantage of the mass enthusiasm for Bitcoin." The question of the extent to which Bitcoin could establish itself as a currency in the medium term hardly plays a role. "It's simply too volatile for that," says Emden.
Instead, cryptocurrencies are more like a kind of "new gold", a separate asset class for storing value. With Bitcoin in particular, the fact that the number of available units is clearly limited also plays into this analogy. And as with gold, a lively industry of traders, intermediaries and other entrepreneurs has formed around crypto assets who want to give people access to the market.
Many of them do not have the best reputation, including some so-called crypto exchanges. Although investors can buy Bitcoin there, their own Bitcoin balance is usually stored centrally at the exchange. If this is hacked, it can happen that your own wealth is quickly gone. This happened relatively frequently, especially during the first boom.
Many investors are therefore looking for secure, reputable ways to invest in cryptocurrencies. Christoph Iwaniez wants to offer such an opportunity. The trained economist previously worked at LBBW and on the development of Paydirekt, an online payment method used by German banks. But in 2018, the world of the old financial institutions became too cramped for him and he moved to the fintech scene, to the start-up Bitwala. He is now CFO and Managing Director there.
Bitwala aims to make Bitcoin investments possible directly from current accounts. "We are primarily targeting mainstream customers who are wondering why they can't buy bitcoins from their savings bank," explains Iwaniez. After all, people in Germany in particular are very interested in crypto investments. "People in this country are traditionally very skeptical of inflation, so they have always been very enthusiastic about gold." He now hopes that this enthusiasm will also be transferred to "digital" gold.
In fact, around six percent of people in Germany use or own cryptocurrencies. That's not a lot; the proportion is higher in Spain and Greece, among other countries.
At Bitwala, customers can buy bitcoins directly from their current account instead of having to go through separate crypto exchanges. The company charges a fee of one percent for every purchase or sale. In addition to Bitcoin, Bitwala also offers Ethereum, the second-largest cryptocurrency by market capitalization. "Bitcoin and Ethereum are popular investments for beginners," says Iwaniez.
However, crypto analyst Emden points out that it is precisely the currencies that fly somewhat under the radar that could be of interest to investors: "Bitcoin is not performing that well, others are achieving better results." So should private investors now rush into the new form of investment? Emden is skeptical: "Anyone investing in crypto should be prepared to lose the money invested."
The risk is enormously high. If you do, then you should concentrate on the major currencies that have at least reached a certain level of market maturity. He considers the current price trend to be overheated. "If your neighbor has already read about it in the Bild newspaper, then it's too late." The fear of missing out is not a good advisor: "Even if I believe in the fundamentally positive development." However, the development since the end of the year is no longer healthy.
Bitwala CFO Iwaniez is also aware of the volatility, but is convinced that his company's clients are relaxed about it. "Many of our customers pursue a buy-and-hold strategy, so very few of them speculate," he explains. For anyone who seriously invests in Bitcoin, the price is just a snapshot anyway. They are hodlers, as the crypto scene calls investors who prefer to hold their assets rather than sell them for a quick profit. Hodl stands for "hold on for dear life", holding on at all costs. The development to date proves them right: since its creation in 2009, Bitcoin alone has risen by almost 4,000 percent. By comparison, the German share index (DAX) has "only" risen by 222% in the same period.
The rally is likely to continue for the time being. More and more companies are announcing their intention to invest in Bitcoin, most recently the short message service Twitter, whose boss Jack Dorsey also runs the financial services provider Square. His partner in this is rap superstar Jay-Z. No one knows if and when the rude awakening will come.
Stories
26.2.2021
Lars-Thorben Niggehoff
Cryptocurrencies have increasingly entered the mainstream as an asset class, also thanks to prominent supporters. Changing conditions could make the boom in alternative money much more sustainable this time than three years ago.
Stefan Thomas is a man in demand at the moment. The German thirty-something is a successful IT entrepreneur in San Francisco. And yet this fact is not the reason why the media, from the New York Times to the Augsburger Allgemeine, are reporting on the programmer. The reason is that Thomas had a wealth of over 200 million US dollars at times, which he cannot access. Thomas owns 7,002 Bitcoin, units of a cryptocurrency that has been keeping the financial markets in suspense for months with dizzying price explosions. But he has forgotten the access data to his digital wallet, where the wealth is stored.
This makes him one of the more unfortunate of the many Bitcoin millionaires on the planet. It is not clear exactly how many there are. Thanks to Bitcoin's decentralized structure, it is possible to track exactly how much is in which crypto wallets. However, the wallet owners are anonymous, so it is also possible that one of them owns several million wallets.
In November last year, there were a good 25,000 of these wallets worth millions. In mid-February 2020, there were even around 40, representing billions in assets. The largest of these contained 141,452 Bitcoin, which was equivalent to around seven billion US dollars at the time.
Such sums are now also attracting traditional billionaires, such as Elon Musk. Musk, godfather of the global car industry, intimate enemy of all short sellers and self-proclaimed Mars colonizer, has been cheering cryptocurrencies for several months, especially the well-known Bitcoin, but also the rather obscure Dogecoin at times, which he has apparently turned away from again.
Cryptocurrencies are therefore one of the hottest assets on the global financial markets. Over the past year, the value of Bitcoin has risen by over 300%, and one Bitcoin is now worth 50,000 dollars. Alternatives such as Ethereum (+500%) and Ripple (+80%) have also seen huge price rises.
However, some experts consider this boom to be a bubble, including the British Financial Services Authority, which warned investors not to invest in cryptocurrencies as they could otherwise lose all their money. This was the case during the first crypto boom in 2017: Bitcoin reached a new high of almost 20,000 US dollars at the time, only to collapse completely within a short space of time to a price of around 5,500 US dollars at the end of 2018. Many people lost a lot of money, with some people taking on huge debts to cash in on the hype. Major banks such as JPMorgan Chase and Citigroup even banned their customers from buying Bitcoin by credit card.
Could such a price collapse happen again? Or have cryptocurrencies come to stay this time? There are indeed many indications that they will continue to play a role in the global financial market in the future. After all, digital money is no longer just a playground for nerds; even major payment service providers such as PayPal or Mastercard and most major banks are getting involved in the crypto market. And the once so critical major bank JPMorgan Chase even expects a price of USD 146,000 in the future, around three times the previous high.
The sudden success is mainly due to the fact that the perception of cryptocurrencies has shifted. "For many investors, Bitcoin and co. are a store of value and not a means of payment," explains Timo Emden. He analyzes the cryptocurrency market with his company Emden Research and believes that the current boom is not comparable to that of 2017. The drivers are different this time, "otherwise Bitcoin would have bounced off the 20,000 dollar mark again". He sees two reasons why the rise has exceeded this previous high: "Firstly, regulation is better today than it was three years ago, and secondly, there are also many institutional investors involved who want to take advantage of the mass enthusiasm for Bitcoin." The question of the extent to which Bitcoin could establish itself as a currency in the medium term hardly plays a role. "It's simply too volatile for that," says Emden.
Instead, cryptocurrencies are more like a kind of "new gold", a separate asset class for storing value. With Bitcoin in particular, the fact that the number of available units is clearly limited also plays into this analogy. And as with gold, a lively industry of traders, intermediaries and other entrepreneurs has formed around crypto assets who want to give people access to the market.
Many of them do not have the best reputation, including some so-called crypto exchanges. Although investors can buy Bitcoin there, their own Bitcoin balance is usually stored centrally at the exchange. If this is hacked, it can happen that your own wealth is quickly gone. This happened relatively frequently, especially during the first boom.
Many investors are therefore looking for secure, reputable ways to invest in cryptocurrencies. Christoph Iwaniez wants to offer such an opportunity. The trained economist previously worked at LBBW and on the development of Paydirekt, an online payment method used by German banks. But in 2018, the world of the old financial institutions became too cramped for him and he moved to the fintech scene, to the start-up Bitwala. He is now CFO and Managing Director there.
Bitwala aims to make Bitcoin investments possible directly from current accounts. "We are primarily targeting mainstream customers who are wondering why they can't buy bitcoins from their savings bank," explains Iwaniez. After all, people in Germany in particular are very interested in crypto investments. "People in this country are traditionally very skeptical of inflation, so they have always been very enthusiastic about gold." He now hopes that this enthusiasm will also be transferred to "digital" gold.
In fact, around six percent of people in Germany use or own cryptocurrencies. That's not a lot; the proportion is higher in Spain and Greece, among other countries.
At Bitwala, customers can buy bitcoins directly from their current account instead of having to go through separate crypto exchanges. The company charges a fee of one percent for every purchase or sale. In addition to Bitcoin, Bitwala also offers Ethereum, the second-largest cryptocurrency by market capitalization. "Bitcoin and Ethereum are popular investments for beginners," says Iwaniez.
However, crypto analyst Emden points out that it is precisely the currencies that fly somewhat under the radar that could be of interest to investors: "Bitcoin is not performing that well, others are achieving better results." So should private investors now rush into the new form of investment? Emden is skeptical: "Anyone investing in crypto should be prepared to lose the money invested."
The risk is enormously high. If you do, then you should concentrate on the major currencies that have at least reached a certain level of market maturity. He considers the current price trend to be overheated. "If your neighbor has already read about it in the Bild newspaper, then it's too late." The fear of missing out is not a good advisor: "Even if I believe in the fundamentally positive development." However, the development since the end of the year is no longer healthy.
Bitwala CFO Iwaniez is also aware of the volatility, but is convinced that his company's clients are relaxed about it. "Many of our customers pursue a buy-and-hold strategy, so very few of them speculate," he explains. For anyone who seriously invests in Bitcoin, the price is just a snapshot anyway. They are hodlers, as the crypto scene calls investors who prefer to hold their assets rather than sell them for a quick profit. Hodl stands for "hold on for dear life", holding on at all costs. The development to date proves them right: since its creation in 2009, Bitcoin alone has risen by almost 4,000 percent. By comparison, the German share index (DAX) has "only" risen by 222% in the same period.
The rally is likely to continue for the time being. More and more companies are announcing their intention to invest in Bitcoin, most recently the short message service Twitter, whose boss Jack Dorsey also runs the financial services provider Square. His partner in this is rap superstar Jay-Z. No one knows if and when the rude awakening will come.
About the author
Lars-Thorben Niggehoff
Lars-Thorben Niggehoff writes about real estate, start-ups and investing.
