Can you actually invest in cryptocurrencies?

Cryptocurrencies (Bitcoin, Ethereum, Tether, etc.) stay something magical or mysterious, because what exactly is a cryptocurrency, or crypto coin?

First of all, a crypto coin is not legal tender and is therefore not money
like the Euro is to us. In general, we do not calculate in crypto coins but in euros. What is Cryptocurrency? You could describe Cryptocurrency as an asset that is digitally tracked in a blockchain or distributed ledger. Immediately a lot of jargon: What is an asset, a blockchain, or a distributed ledger? The answer in simple language is as follows: A kind of money that is held digitally, for example, an account called “a wallet”. The digital account held in Cryptocurrency can quickly increase or decrease in value every second (volatility), and as a holder of such a wallet, you do not know whether you will be reimbursed in case of failure. There is no central bank supervision of crypto assets, as well as no so-called Deposit Guarantee system. Therefore, opening an account in crypto coins has at least two major risks: you do not know what will happen to the value and you do not know whether there will be a refund.

Why should you invest in Cryptocurrencies?

Little is known about this phenomenon in the investment literature, just as it was in
the 1970s and 1980s when stock option investing was on the rise. How can you
learn something about this new phenomenon? By trying to invest in cryptocurrencies in a controlled way, you will find out how it works and what it does. Purchase your wallet from a reliable wallet company for an amount that you really want to invest, for example, € 500. Purchase 10 different crypto coins (for € 50 each) and follow this ‘investment’ for about 6 months by checking what happens with each crypto coin every week. This way you build up experience with your wallet and your ‘investment’. It is nice to do that with a few people and compare the wallets of each other.

Learning by doing or inductive/experiential learning

The form of learning by doing (i.e., experiential learning) is a way of understanding
how crypto coins work. If things go wrong, you will lose a maximum of € 500 (the amount of a weekend in Paris for two). For example, I started in this way with an ‘investment’ of € 500 and after 8 months it was worth about € 600 (with a top of € 900) with an effective return of more than 30% on an annual basis.

What did I learn from it?

Don’t get greedy, don’t sell when your wallet reaches € 900, and don’t buy extra
crypto coins. It’s a bit like a casino, stay composed! So, it is recommended to experiment with, for example, € 500 under the supervision of a professional to build the knowledge of investing in cryptocurrencies.

Advice

I would not advise investing in cryptocurrencies with the purpose to secure your pension, to stop working earlier, or to finance your children’s studies. You should consider other more stable investment
instruments, and ask for advice from a financial professional having the necessary expertise in investment techniques, fiscal issues, and the future needs of an investor.

So, an answer to my question “Can you actually invest in Cryptocurrencies?“

Do not! But do develop your knowledge with a small amount, with a secure wallet
provider. We all know the FOMO (Fear Of Missing Out) principle and behavior of
not wanting to quit a casino; my advice is not to succumb to such temptations when it comes to serious investments!

Jan H. Jansen, March 2023