Cryptocurrencies as pioneers for digital wealth creation

Bitcoin: Here to Stay

Bitcoin made a brilliant comeback in 2020: In mid-March 2020, the leading digital currency was still available for 3,550 euros. At the end of November, one Bitcoin was already costing 16,000 euros and came close to the record high of just under 20,000 euros in 2017. Bitcoin market capitalization has reached a new high of around 388 billion dollars. The market capitalization consists of the market value and the available amount of Bitcoin. Since Bitcoin can be produced as a unit of calculation (so-called mining), more bitcoins have also been in circulation since 2017.

However, the current rally has a different character than the speculation bubble of the time. In addition to private investors, institutional investors, companies and regulators are increasingly discovering the benefits of blockchain-based means of payment.

The digital financial sector is becoming more professional

Digital currencies have long since outgrown the dark zone, are increasingly establishing themselves as an alternative currency or means of payment and are now regarded by professional investors as a hedge against stock market turmoil.

The status of cryptocurrencies as “safe havens” was demonstrated during the corona pandemic: Volatile stock markets, the expansion of central banks' expansive monetary policy and fiscal programs of historic proportions had led to investors increasingly seeking investment opportunities outside the euro, US dollar and the like. Bitcoin investment funds recorded as a result significant inflows and, in some cases, record figures at the end of October 2020.

Crypto assets also received a tailwind from Bitcoin project of the major payment service PayPal. In October 2020, the Group stated that US customers will be able to buy, sell and store bitcoins via the payment platform in the future. At the beginning of 2021, it should also be possible to pay with retailers using PayPal in cryptocurrencies. Investors speculate that this move towards commercialization will give Bitcoin a further boost. The easier handling under PayPal's umbrella could also increase investor acceptance — and make the currency more suitable for the masses.

European Central Bank tests e-euro

The discussion by the European Central Bank (ECB) about digital currencies such as the “e-euro” also contributes to this acceptance of cryptocurrencies. As a supplement to notes and coins, the digital euro could offer the economy in particular new opportunities. For example, cross-border payments, which currently often take several days, would take place within seconds. Companies could also automate financial transactions and thus accelerate them. Private individuals could use digital money to settle small amounts, so-called microtransactions, quickly and cashlessly.

If the current exchange and preparation phase is successful, involving stakeholders and international partners, It will be decided in mid-2021 whether a digital euro will be launched. However, digital money — all central banks in the Eurozone value this — is not intended to replace cash, but complement it.

Cryptocurrencies, stablecoins, and investment tokens

Even though all cryptocurrencies are based on the blockchain and use their technological advantages of speed and efficiency, they differ significantly in function and meaning. There is a basic distinction between coins and tokens. In contrast to coins, which use their own blockchain, tokens run on an existing blockchain, such as the Ethereum blockchain. Most coins and tokens can be traded via crypto exchanges, but are only conditionally suitable as investments, as they are not (yet) subject to regulation and are volatile.

Stablecoins, in turn, are a special form that should guarantee price stability and fewer fluctuations. This is implemented, for example, by issuing promissory notes by a centralized company — as with Tether — or by linking them to a fiat currency (not to be confused with regulated e-money such as the e-euro). Facebook's cryptocurrency Libra, which is used in to be launched in January 2021, As a stablecoin, it will initially be pegged to the dollar.

Tokens, in turn, are divided into utility tokens and security tokens. While the utility token as a type of digital voucher only represents a benefit in the network, security tokens, which are also known as investment tokens, are regulated digital securities that represent investments and realize investment gains.

In the case of digital securities, the investment token therefore represents a share of a property or other tangible asset that is transferred to the buyer using a smart contract. Since the investment token represents part of a tangible asset or a society in need, the indicative token value depends on the price development and distribution of the tangible asset. Investment tokens offer investors more security because, on the one hand, they have a more stable price development than cryptocurrencies due to asset procurement and are also subject to regulatory requirements. Interest in investment tokens in addition to stablecoins is particularly high among institutional investors. 

Tokenized investments: digital and diversified investments

The Internet has opened the door to new investment opportunities. Digital assets represent an equal variant to existing investment options such as funds or individual shares. Investors use investment platforms to provide capital in the form of equity-like bonds and in return receive a “digital share” (investment token) of the specific tangible asset (“single asset”). In this way, private investors get Access to investment opportunities, such as real estate projects or other exclusive tangible assets that were previously reserved only for institutional investors.

Customers want today's investments to be cheap, flexible and self-determined. With tokenized securities, investors always have access to their digital portfolio and know 100% of which assets they are investing in. These digital processes result in cost savings, which have a positive overall effect on investors' returns and distributions.