Nerd or visionary? Which investors invest in cryptocurrencies

Bitcoin euphoria attracts speculators

In the early years of Bitcoin, cryptocurrencies were actually only for particularly tech-savvy first movers. Legendary is The story of the American Laszlo Hanyecz — one of the first Bitcoin miners ever. But since he couldn't spend the BTC he mined himself (symbol of Bitcoin) anywhere, he made the suggestion in a Bitcoin forum in May 2010 that he wanted to pay 10,000 Bitcoin for two pizzas. After a few days, on May 22, 2010, Jeremy Sturdivant (Jercos) got in touch and assured Hanyecz that he would send him two pizzas. The deal came about and Hanyecz proudly posted: “I just want to share that I've successfully exchanged 10,000 bitcoins for pizza. Thank you Jercos.” To date, the top pizzas would have cost the equivalent of around 700 million dollars.

Although Jerco's pizza bitcoins quickly found their way back into the economic cycle in 2010 via video games, the two pioneers have no regrets about their first Bitcoin transaction. The now 30-year-old Hanyecz once said that he was proud to have played a part in the global phenomenon.

Over the years, however, the Bitcoin investor base has changed significantly. During the

Boom phase 2017-2018 attracted cryptocurrency due to extreme price jumps (so-called volatility) primarily speculators with an IT background who were looking for quick money. Above all, Bitcoin, which became a symbol of rapid wealth. Anyone who invested in Bitcoin could become a millionaire “overnight” — or suffer massive losses.

In the historical view The year 2017 represents the peak of the first decade of Bitcoin. In the first quarter, the share price rose to more than 1,000 dollars. In August, BTC reached 4,000 dollars and by the turn of the year, the 20,000 dollar mark was finally broken due to the enormous euphoria in the market.

What followed was a market phase that some compared with the Dutch tulip mania in the 16th century. People with a wide variety of educational backgrounds and financial reserves speculated on possible Bitcoin price gains. Manche They even sold house and yard in the hope of quick riches. But then it happened as it had to happen: The euphoria was followed in 2018 by the Bitcoin crash down to around 3,000 dollars per BTC in December.

But as early as 2021, the mother of cryptocurrencies broke new records again and cost just under 70,000 dollars at a peak. However, the high volatility remains an integral part of Bitcoin, as it is not based on any immanent value. The BTC price is based entirely on the relationship between supply and demand. Bitcoin's supply is limited to the actual amount of a maximum of 21,000,000 BTC.

Despite potential price fluctuations, cryptocurrencies are attracting an ever wider target group due to progressive institutionalization, better accessibility and lack of profitable investment alternatives. In addition, new cryptocurrencies are constantly being issued, which appeal to a wide variety of buyer segments. Be it in the form of altcoins — alternatives to Bitcoin such as Ethereum or Cardano —, metaverse coins such as Decentraland (MANA) or NFTs (Non-Fungible Token), which represent unique, digital works of art on the blockchain and make them tradable.

Crypto investors: Money-hungry nerds or clever visionaries?

Since the legendary Bitcoin pizza transaction, the cryptocurrency market and its target audience have undergone rapid change. The Bitcoin spectrum now ranges from speculative objects to means of payment, to local currency and digital store of value. Some investors even refer to BTC as “digital gold” and increasingly see it as an alternative asset class. Two recent studies also confirm this paradigm shift:

Based on a online survey Among 3,864 Germans, 9.2% of respondents owned cryptocurrencies in 2019; a further 9.1% owned them in the past. The dominant cryptocurrency among owners was Bitcoin (80.7%) followed by Ethereum (25.8%) and Litecoin (16%).

In the USA, the figures are significantly higher: According to a study In 2021, 86% of Americans said they had heard of cryptocurrencies at least once. 16% of respondents owned or own Bitcoin or other cyber currencies.

If you compare the profile of Germans with that of US crypto investors, you can see clear similarities: They are predominantly male, young, have a medium to high income and are educated.

Die Motives for investing in the crypto market were examined in another study from 2021:76.1% of respondents stated that they see cryptocurrencies as the future of the financial world. 62.2% are interested in the technology behind them and 46.8% want to bring more diversity to their portfolio. 42.3% see cryptocurrencies as “digital gold” and 40% simply want to take advantage of new investment opportunities.

What are the risks of crypto investments?

However, investors who want to use cryptocurrencies to diversify their portfolio should also be aware of their risks. In addition to low investor protection, high volatility and a significant risk of loss to which Bitcoin & Co. are exposed, there are also (tax) legal pitfalls to consider.

The Federal Ministry of Finance classifies Bitcoin and all other digital currencies as private money. When with the sale taxable profits are achieved, these are subject to the personal tax rate. Bitcoin and Co. currently have a one-year speculation period, during which a sale is not taxable. If, on the other hand, investors sell their shares before the expiry of this period, the profit must be taxed at the personal tax rate. But: There is an exemption limit for profits from selling crypto money. If the profit from digital currency business is lower than 600 euros per year, the plus remains tax-free. If it is only one euro higher, however, the entire profit must be taxed. In contrast to gains from shares, crypto proceeds are not automatically transferred by the bank to the tax office in the form of a flat rate withholding tax. In order to be able to prove how and when sales gains or losses occurred, investors must be able to document all purchases and sales in detail — which can be both time-consuming and prone to errors.

Blockchain technology offered new investment opportunities

The interest of a broad, mostly well-informed and well-situated group of buyers shows that cryptocurrencies are no longer a niche product but are increasingly being used to diversify one's own portfolio despite existing risks. However, blockchain technology comprises far more forms of investment than the well-known cryptocurrencies.

In addition to Bitcoin & Co., other blockchain-based forms of investment, such as Bitcoin & Co., are also winning Investment Token in importance. This allows ownership rights to very real tangible assets, such as real estate or collectibles, to be “pieced” (tokenized) and securely represented on the blockchain. Investment tokens differ significantly from cryptocurrencies because they correspond to the tokenized form of a conventional security and are therefore subject to financial market regulations. The income from investment tokens is taxed in the same way as income from capital assets within the meaning of Section 20 EStG. Capital gains from sales of security tokens are treated as income from capital assets and are usually subject to flat rate withholding tax. In contrast to cryptocurrencies, investment tokens offer a wide range of applications with significantly lower volatility risks, better investor protection and relatively simple tax handling. Investment tokens therefore form an attractive, alternative asset class, which is known as portfolio diversification offers for a broad target group.

The information on the tax treatment of cryptocurrencies, their sale and/or the trading of investment tokens, etc. does not represent tax advice and cannot replace it. In the event of such a situation, you should consult your tax advisor.