The cost of crypto: Weighing the pro and cons of investing in Bitcoin

Investing into Bitcoin has become mainstream, but before getting in on the action, think first: do you know the risks and the impact on the environment? — dpa

Anyone who invested in Bitcoin in 2020 would have made a good deal. At the time, the cryptocurrency was worth around US$8,000 (RM33,884). Now it’s worth five times that.

Stories of such fabulous profit opportunities are attracting more and more investors to the crypto market.

Cryptocurrencies are digital, cashless means of payment. They are managed and traded in a decentralised, secured payment system on the internet without the control of banks.

Almost 300 million people owned digital currencies at the end of last year and the figure is predicted to reach one billion by the end of 2022, the platform has calculated.

"Many are afraid of missing out. That's why they're getting in," says Hartmut Walz, an economist at Ludwigshafen University of Applied Sciences in Germany.

It is becoming ever easier to buy cryptocurrencies. Many online brokers have long since offered individual currencies for purchase and conventional banks are moving towards allowing customers to buy crypto using their current accounts.

Growing interest in crypto

Interest has increased significantly, says Timo Emden, specialist for cryptocurrencies at the stock market portal Emden Research.

"Cryptocurrencies have arrived in the classical financial world, the asset class has established itself. Therefore, it is overdue and makes sense that classic banks also take the plunge,” he says.

Previously, those who wanted to invest in Bitcoin and the like usually had to buy coins by using trading platforms and then transfer them to their wallet, a kind of digital purse.

Owners have to keep the private key that controls access to this wallet as secure as possible. Figuring this out and setting it up took time, patience, and some technical knowledge.

With online brokers, it's often all much easier: one click or swipe and the investor owns a bit of Bitcoin or Ethereum, which is stored right there in a wallet.

Simple access makes it easier for people who might not otherwise have invested in crypto, for example, older people, small investors, and the less tech-savvy.

Virtual currency but real risks

Hartmut Walz doesn’t see this easier accessibility as necessarily a good thing. "It is a fatal sign that buying digital currencies is becoming easier and easier. This is aimed at the wrong target groups," he says.

Experience with this asset class is still thin, he warns. "Profits are pure luck with digital currencies. No-one can predict how the market will develop in the long term," says Walz.

Cryptocurrency is a volatile asset. Even a tweet can send values skyrocketing, as when Tesla founder Elon Musk announced last year that in future people will be able to buy his cars using crypto.

Many investors are also betting on crypto as a crisis currency, similar to gold. After all, cryptocurrencies are also not controlled by any central bank, the argument goes.

And in the case of bitcoin, for example, the number of coins is limited, just as with precious metal, which cannot be extracted endlessly from the earth.

Not a safe haven

"Cryptocurrencies offer no protection in market phases characterised by uncertainty,” Timo Emden warns.

This is because they function as a high-risk asset class and are usually abandoned rapidly when uncertainties arise. "The safe haven narrative remains a myth.”

That's why he urges caution when investing in crypto: "The risk of loss is much higher than with equities. So investors must also expect a total loss.”

However, he doesn’t completely advise against cryptocurrencies either. It all depends on how much risk someone is willing to take.

The environmental impact of cryptocurrencies, meanwhile, adds a risk that goes far beyond your own finances. That's because Bitcoin and co contribute to an enormous amount of global energy consumption that rivals the power usage of an entire country like Egypt or Ukraine.

Researchers have long warned that the hardware and electricity needs of Bitcoin alone could significantly impact climate change for the worse. Bitcoin is responsible for 0.63% of global electricity consumption, according to the Cambridge Bitcoin Electricity Consumption Index.

The technical design that powers cryptocurrencies causes them to consume an enormous amount of energy in so-called mining centres around the world, and investors should know that the carbon footprint of the crypto community has risen steadily in recent years. – dpa

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