Why is crypto currency so annoying

Crypto money on credit : Investors go into debt to buy Bitcoin

It's just a joke at first. Gabi and Werner Brockhoff simply buy their first bitcoins to see what happens. But then the price of the cryptocurrency rises, and rapidly. Instead of selling and realizing their profit, the couple from Berlin are becoming more courageous. In November they take out a loan of 20,000 euros to buy more bitcoins. They also buy Trons, units of a new cryptocurrency that has only been on the market since September. The Brockhoffs, who do not want to read their real name in the newspaper, are convinced: Bitcoin and the blockchain technology behind it have a future, and they want to benefit from it. She does not mind that others cannot understand why they are going into debt for it. Werner Brockhoff says it's like Galileo Galilei. One did not want to believe him at first when he claimed that the earth revolves around the sun.

It is investors like the Brockhoffs who drove the Bitcoin price up over the past year. While a unit of the cryptocurrency cost $ 1,000 at the beginning of 2017, it was almost $ 20,000 before Christmas. That turned a few millionaires and aroused greed in a great many more people. But the past few weeks have shown: As quickly as you can earn money with Bitcoins, you can lose it again just as quickly. A few days ago the price of a Bitcoin fell to $ 6,000, most recently it was $ 8,000 again.

18 percent of investors buy Bitcoin on credit

In view of these price fluctuations, it is accordingly worrying that investors are increasingly entering into debt for the purchase of crypto currencies. Like the Brockhoffs, 18 percent of Bitcoin buyers are now taking out a loan. This is shown in a survey of 3,000 investors in the USA and Europe that the Coindesk website has just published.

Wolf Brandes from the Hessen Consumer Advice Center considers this to be a critical development: "An investment in Bitcoins is high-risk, in the worst case there is a risk of total loss." Anyone who has taken out a loan quickly gets stuck with debts. Brandes already feels reminded of the Neuer Markt. Back then, investors also dreamed of big profits, bought shares on credit - and in the end lost a lot of money. Felix Hufeld, head of the financial supervisory authority Bafin, also fears that the Bitcoin boom will lead to "excesses that produce bitter losers".

Banks restrict transactions

Some banks therefore intervene. JP Morgan, Citigroup, Bank of America and Lloyds recently stopped letting their customers buy Bitcoins with their credit cards. In doing so, they want to protect consumers - but also themselves. The banks are obviously too afraid that they will be left with the debt if the rates for cryptocurrencies crash. Especially since credit cards in the USA and Great Britain work a little differently than in Germany: If the outstanding amount is automatically debited from the current account in this country on a monthly basis, customers in Anglo-Saxon countries can flexibly decide when to repay how much. In contrast to Germany, in the USA and Great Britain you get a real loan via the card and the banks have no interest in customers using it for gaming. And buying bitcoins is a gamble, as central bankers like Mario Draghi see it. Digital currencies have to be classified as "very risky investments," he said this week.

Especially since nobody knows how things will go with the cryptocurrency. The few forecasts that exist differ widely. While the Danish Saxo Bank sees the Bitcoin price rise to $ 100,000 this year, Goldman Sachs warns that some cryptocurrencies could drop to zero. Oliver Flaskämper, who has been dealing with Bitcoins for years and runs Germany's only marketplace for crypto currencies Bitcoin.de, does not even dare to make a forecast. “I could also predict the lottery numbers there,” he says.

The electricity consumption for the production of bitcoins is high

It will also depend on politics how Bitcoin and Co. develop. Governments and supervisors around the world are currently concerned with the question of how to control cryptocurrencies. Agustin Carstens, Director General of the Bank for International Settlements (BIS), thinks this is absolutely necessary. "What was perhaps originally intended as an alternative payment system without state participation has now become a mixture of financial bubble, pyramid scheme and environmental disaster," he said this week. By the latter, he means the enormous amount of energy that has to be expended to create bitcoins on high-performance computers. The electricity consumption for the production of the cryptocurrencies already corresponds to the consumption of the state of Singapore, Carstens calculates.

In Germany, the Bitcoin regulation even appears in the coalition agreement between the Union and the SPD: They want to work for an "appropriate legal framework for trading in crypto currencies and tokens at European and international level," it says. At the request of Germany and France, a set of rules for crypto currencies could even become an issue at the meeting of the G-20 finance ministers in March. The two countries propose that international expert bodies such as the FSB, which is responsible for questions of financial stability, be commissioned with a report first. In addition, consideration should be given to using the International Monetary Fund (IMF). But this also shows that what regulation of crypto currencies should look like is still open. Especially since this runs counter to the ideas of their inventors, who want free currencies that are not controlled by the state.

South Korea and China have banned Bitcoin trading

China and South Korea, which completely ban Bitcoin trading, are already going particularly far. Exchanges on which Bitcoin and Co. are traded have to close. China has also banned the creation of new bitcoins. Digital currencies are generated on high-performance computers - without access to the power grid, which China is now denying, this is not possible.

However, a complete ban on cryptocurrencies is hardly enforceable worldwide, says stock exchange operator Flaskämper. He compares that to gold: the precious metal has also been banned time and again throughout history. But you couldn't hold out. In his view, a ban would not mean the end of cryptocurrencies - trading in them would then only migrate to the so-called Darknet. Governments may not be interested in that either.

In addition, investors do not want to do without cryptocurrencies either. Despite the crash, Werner Brockhoff continues to firmly believe in the rise of crypto currencies. “The most recent crash was good and healthy,” he says. Before that, Bitcoin and Co. had risen far too quickly. Brockhoff took advantage of the courses that had fallen: "I have now made another purchase."

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