According to the hype-cycle theory, every new technology, such as the Internet or 3-D printing, goes through five different phases of public attention. First, there is a technical breakthrough or an exciting project, which interests the professional audience in particular. Phase two is followed by broad coverage with unrealistic expectations of the new technology. In their environment, more and more companies are being created, which are being rated higher and higher.
But sometime it turns out: The expectations are too high, they can not be fulfilled. It follows the third phase, the valley of disappointment. Stock prices are falling, reporting is ebbing, and few players remain in the market.
But now phase four follows: a growing understanding of the benefits, but also the limitations of the new technology. The expectations adapt to the reality. Now is a good time to invest as the prices of the remaining companies start to rise again. Finally, in the fifth and final phase, they reach a productivity plateau where they grow stably.
“In fact, a lot of cryptocurrency reminds me of this hype cycle,” says Frank Schwab, fintech entrepreneur and co-founder of the FinTech Forum. That ‘s what he saw Bitcoin as the first Internet currency in 2008, the light of day. Today there are more than 4,500 virtual processing units.
In addition, the prices of many cryptocurrencies in 2017 have gone through the roof. At the beginning of 2016 there was a bitcoin for $ 450. By the end of 2017, he climbed to nearly $ 20,000. At times, price targets of half a million dollars and more were mentioned. No less spectacular were other virtual currencies such as ripple or ethereum. This also reflected the expectations of some virtual money: At some point, so the idea, it will completely replace paper money and become the world currency.
That the idea of the Internet currencies last ignited so , is likely to have several reasons. Anyone can pay for it – no matter where he is. Many of the virtual processing units also enable fast, secure and cheap payment transactions. “In addition, they are not subject to government control, operate independently of central banks and banks, and their amount – unlike paper money that can be created indefinitely – is limited,” says Uwe Zimmer, managing director of digital asset manager Fundamental Capital. So far, about 16 million bitcoins have been generated by computers. The upper limit of 21 million will be reached in 2040.
But the technology is especially exciting on which many cryptocurrencies are based: the blockchain. “This works so that the data of all transactions with the cryptocurrency are stored decentrally on all computers and smartphones in the network and verified by it,” explains Schwab. “There are practically no manipulations possible.”
Although air was last released from the hot market. For example, a bitcoin currently only costs around $ 7,000. “Nevertheless, I assume that we are still in the second phase of the hype cycle,” says Schwab. But maybe the next phase, the Valley of Disappointment, is already close. Then it will come to a market adjustment. “I can only imagine that in the end there will be only a few crypto currencies that will function as a means of payment without large price fluctuations and then become the virtual version of leading currencies like the dollar, the euro, the yen or the pound,” says Schwab. Therefore, it may be worthwhile to put together a portfolio of some virtual computing units today.
The direct purchase of cryptocurrencies but has a few snags: First of all, the acquisition of virtual processing units is complicated and time consuming. He only goes via crypto exchanges. “Investors must remember that they are not subject to any supervision,” says Salah-Eddine Bouhmidi, analyst of the information service DailyFX Germany. In addition, investors can put Bitcoin and Co in the electronic purse, but they can only rely on rising prices. If cryptocurrencies come under pressure again, then heavy losses are programmed.
Here Contracts for Difference, CFDs for short, could be an alternative, as it can easily be speculated on crypto currencies. In addition, it is possible to bet on falling prices. Other strategies can be implemented, such as long for one cryptocurrency and another for a short. To trade CFDs, investors must open an account with a CFD provider and deposit a safety margin there. This is usually five to ten percent of the nominal value of the investment. For virtual currencies, this is usually much higher.
Basically, investors can do this way to speculate on Bitcoin and Co with little capital and leverage – with the disadvantage that they do not physically own the cryptocurrency. Example: An investor buys two Bitcoin at a price of $ 7,000 each through CFDs. If the security margin at ten percent, he must deposit $ 1,400. If the Bitcoin price rises by five percent to $ 7,350, the investor makes $ 700 profit less costs. Based on the capital employed, the profit is therefore almost 50 percent.
If the course falls, however, the safety margin can be used up quickly. In the worst case, the $ 1,400 are gone. Unlike before, however, investors no longer have to pay additional funds. Since August 2017, the Financial Regulator prohibits trading in CFDs when investors lose more than their account balance.
However, if you want to trade cryptocurrencies in this way , must search. Not all providers offer virtual currencies. These include Ayondo, where Bitcoin and Ethereum can be traded, as well as FXFlat and JFD Brokers, both of which have CFDs on Bitcoin in their program. Another broker is ActivTrades (Bitcoin, Ethereum, Litecoin). The biggest offer is IG and Admiral Markets. In addition to Bitcoin, IG can also use Ethereum, Litecoin, Ripple, Bitcoin Cash or Bitcoin gold be wheeled. Admiral Markets provides access to Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Ripple, Dash, Monero and Zcash. The largest broker in this country, CMC Markets, is only possible for professional traders to acquire Bitcoin and Ethereum.
“For a long-term commitment, CFDs are not yet suitable because of the high cost,” says analyst Bouhmidi to consider, “but this can be implemented with a number of interesting strategies.” For example, securing cryptocurrencies in your own e-wallet by setting falling prices, ie short (see example calculation below).
Profit from falling prices
This investment alternative via CFDs can be exciting for another reason. If cryptocurrencies actually enter Phase Three – the Valley of Disappointment – then falling prices are definitely to be expected. A hedge with CFDs is then particularly valuable.
crypto currencies These are digital means of payment that enable payment transactions without banks through decentralized data management. Typically, a number of currency units are generated by the entire system together, with the set being limited by a cryptographic mode. First traded crypto field since 2008 is the Bitcoin. Since then, more than 4,500 crypto vouchers have been created, of which 1,000 have a daily trading volume of $ 10,000.
CFDs These are contracts for difference. With CFDs, investors speculate on the difference between the buying and selling price of an underlying that is not physically purchased. These are indices, stocks, commodities or foreign exchange. Investors can bet on rising and falling prices. Only a small part of the capital is invested, thus creating a leverage effect. CFDs are only suitable for experienced investors who take high risks. Total losses are possible, but also huge profits.
Basics: For most providers, CFDs on Bitcoin and Co can only be against the
US dollars are traded. For this reason, the calculation below is made
Dollar basis. The security margin for cryptocurrencies to deposit varies greatly and
can be up to 40 percent. In the example, ten percent is assumed. The fees
are based on a rough estimate.
Scenario: Hedging with CFDs against price losses with Bitcoin
Situation: An investor has a $ 7,000 bitcoin in his e-wallet.
He expects a price slump and therefore secures this with two Bitcoin CFDs.
Short position: Buy 2 CFDs on Bitcoin at $ 7,000: $ 14,000
Net investment = margin (10% of $ 14,000): $ 1,400
Bitcoin down 10% to $ 6,300: $ 12,600
Profit from short position Bitcoin (14,000 – 12,600): 1,400 dollars
Loss Bitcoin in the e-wallet (7,000 – 6,300): -700 dollars
Estimated order fees and financing costs for 10 days: -40 dollars
Profit: 660 dollars
Result: CFDs have the advantage for investors that they can hedge against losses on bitcoin and cryptocurrencies. Although held Bitcoin loses $ 700 in value, the short position, the investor but on balance, $ 660 profit.
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