What is a cryptocurrency? What’s the point ? How are they made? What makes their value? What are the different types of cryptocurrencies? How to invest in crypto currencies while the crashes are linked in a bear market that is testing the nerves of investors?
What trends for cryptos for the end of 2022? Our Top 10 virtual currencies in circulation as well as the price of the main cryptocurrencies of the day. Operation, uses and recommendations, taxation, discover everything you need to know before investing in digital currencies such as Bitcoin, Ethereum, Dogecoin, Binance Coin, Ripple… which are no longer virtual.
Crypto currency and virtual currency: what is it?
Definition of a cryptocurrency
Cryptocurrency refers to both a cryptographic currency and a peer-to-peer payment system. These digital currencies are therefore virtual currencies in the sense that they are characterized by an absence of physical support: neither coins nor banknotes, and payments by check or bank card are not possible either.
These are alternative currencies that are not legal tender in any country in the world, with a few rare exceptions. Their value is not indexed to the price of gold or to that of conventional currencies, nor are they regulated by a central body or financial institutions. There are no central banks at their head. And yet, security and transparency are their main assets! Indeed, cryptography secures transactions which are all verified and recorded in a public domain, ensuring both confidentiality and authenticity thanks to Blockchain technology.
The Blockchain: basic technology of cryptocurrency
Crypto currencies are all based on the same principle: the Blockchain. Cryptocurrencies are a series of numbers stored on a computer in the form of blockchains. The principle is actually quite simple and particularly well explained in the article published in Les Échos Bitcoin and crypto currencies, new digital coins: “Take a database. Allow anyone to make changes to this database, on the sole condition of declaring themselves a “member”. Set up a very long and very complex control procedure which must be operated each time a certain number (“block”) of changes is requested. This procedure is carried out not by a single controller, but by all the voluntary “members”. The procedure can also be validated by a single member or only part of the members, drawn by lot. Once validated, the “block” of changes is dated and added to the others in the register. This open register, the reading of which is accessible to everyone, constitutes a database in block chain or blockchain. Thus, it is up to the network to validate and confirm each transaction.
This technology and this system are the basis of the vast majority of crypto-currencies, but Blockchain applications do not stop there. Indeed, it could help disrupt the entire financial sector but also certain sectors such as the legal or administrative sector by making it possible to do without trusted third parties. No need for a notarial deed or civil status register or even a cadastre with this distributed register technology which helps to make data safer and more transparent. Blockchain technology is after all a technology whose database cannot be changed without meeting certain conditions.
NFTs: what are they?
NFTs are making a lot of noise and are getting cryptocurrency investors excited. What is it about ? First, remember that NFTs are tokens or tokens that are also based on blockchain technology. However, they are not cryptocurrencies as they are non-fungible, unlike virtual currencies. If 1 BTC = 1 BTC, 1 NFT is not equal to another NFT because an NFT displays unique properties and shows certain proofs of authenticity and signatures such as a unique identifier, a unique creator or even unique content. nevertheless acts as digital assets with a pecuniary value on which it is possible to invest in order to hope to realize a capital gain. However, their use is not restricted to the sphere of investment, far from it.
How is cryptocurrency made?
People who make cryptocurrency are called miners. They are also said to be mining a crypto-currency. Minors are an integral part of the process. Without them, the Blockchain would be frozen. A minor indeed confirms the transactions that take place on the Blockchain.
For example, imagine that Peter gives 3 Bitcoins to Paul. The transaction will be immediately broadcast on the network, peer-to-peer, made up of computers called nodes. However, it is only after a certain period of time that the transaction will be confirmed by the computers belonging to the network using the algorithms specific to said Blockchain. Once committed, the transaction now forms a new block of data for the ledger. It is added to the others in the existing Blockchain, permanently and immutably.
Behind these network computers are miners who validate the transactions. To confirm a transaction, a miner must find the product of a cryptographic function that connects the new block to its predecessor. This is called proof of work. In exchange for their services (and the computing power mobilized for this purpose), they obtain a reward in the form of tokens or tokens.
How to mine a cryptocurrency?
To mine a cryptocurrency, it is usually sufficient to install software on your computer using the processor or the graphics card, or even both, in order to be able to solve the cryptographic problem requiring a relatively large computing power, which will allow you to touch new units of the crypto-currency in question.
Be careful though, the main cryptocurrencies have become too difficult to mine for individuals alone. The mining of many of them has become largely professional and takes place partly in farms, buildings of several thousand m2 where tens of thousands of servers are running day and night to mine cryptocurrencies (Bitcoin, Litecoin, etc.). China once occupied a prominent place in cryptocurrency mining, but this industry no longer exists in the Middle Kingdom since the Chinese state banned mining or using crypto assets. Thus, in September 2019, 76% of the energy used for Bitcoin mining in the world came from virtual currency miners based in China, a share which has today collapsed to 0. But the US share has jumped ,
Faced with this competition from farms, cloud mining type solutions have been developed. No investment in specific hardware is required. All you have to do is get in touch with a company that has invested in the necessary equipment and “rent” your computing power. But beware, there are many scams!
What cryptocurrency to mine?
Obviously, individuals focus on mining the most profitable virtual currencies such as Bitcoin, but also Dash, Ethereum, Monero, Litecoin, etc.
It is nevertheless very difficult today to make money by mining a crypto-currency. It is often much more interesting to invest in virtual currency to hope to make gains.
Miner/developer: who makes the cryptocurrency?
The role of the cryptocurrency miner is therefore to validate the transactions carried out. He is thus paid in tokens of the cryptocurrency for which he has confirmed a new block.
The role of the developer is very different. A cryptocurrency developer will develop the computer protocol at the base of the cryptocurrency which defines in particular the number of tokens in circulation, their speed of circulation, their storage power, etc. It is a bit like the architect of the network.
Bitcoin, Ethereum: the main cryptocurrencies
How many cryptocurrencies exist? This often asked question seems simple but in reality, it is very difficult to know the exact number of virtual currencies. No site lists them all.
The Ministry of Economy and Finance counted nearly 5,023 in 2021. Today, there are just under 20,000 crypto currencies listed on coinmarketcap. But this is ultimately not the most interesting.
It should be noted that there are very many crypto-currencies but that only a few dozen can be qualified as popular cryptocurrencies. We often tend to rank promising cryptocurrencies based on their market capitalization, and rightly so.
Bitcoin, the first crypto-currency
The Bitcoin cryptocurrency, created in 2008 by Satoshi Nakamoto (without knowing who he is, whether he is a man or a woman, or even a single person or several) is the first of the crypto-currencies. It is a bit like the digital gold standard of the crypto-currency sector, the reference in the field. The main cryptocurrency experienced a “fork” in August 2017. A disagreement in the Bitcoin community over the speed of transactions resulted in the birth of a new currency: Bitcoin Cash, which then immediately rose to third position in the Top 10 cryptocurrencies and has remained since then. around the Top 10 virtual currencies without ever managing to compete with Bitcoin.
Remember that the price of Bitcoin is correlated only in part to the global economic situation and rather obeys a momentum effect and that most of the other virtual currencies are correlated to the price of the first crypto currency. But this is less and less true and challengers manage to make remarkable breakthroughs and in particular Ethereum.
Ethereum, the Bitcoin challenger should benefit from The Merge
The other benchmark cryptocurrency is Ethereum, which also underwent a “fork” in the summer of 2016. Ethereum, more complete than Bitcoin, relies on all Blockchain applications since it can not only process transactions but also complex contracts and programs. Indeed, technically more advanced and more efficient than Bitcoin, Ethereum is both a decentralized exchange protocol that allows users to set up smart contracts as well as a cryptocurrency based on the Ethereum network, more commonly known as Ether. The assets of this cryptographic network have participated in the spectacular rise recorded by Ethereum since 2020. The second active crypto would see itself on the first step of the podium.
Bitcoin and Ether together account for nearly 60% of the total cryptocurrency market capitalization. The dominance of Bitcoin reaches 40% and that of Ether 19.7%.
The Merge or “fusion” in French could well carry Ether to higher levels. This modification of the Ethereum blockchain takes place on September 15, 2022. It is the transition from a proof of work (PoW) type blockchain, that is to say proof of work, identical to Bitcoin, to a blockchain of proof of stake (PoS) type. In the first case, all the validators try to authenticate and validate the transaction on the network and this operation is carried out by the minor who finds, as quickly as possible, the means of inserting a transaction in a new block by solving a complex mathematical problem. In the second case, the validator is drawn and all validators in the network have a chance to validate a block, but this chance is weighted by the number of tokens held.
The Merge sounds like an imperative for Ethereum which has reached the limits of its blockchain with its success and is encountering scalability problems. Transactions, numbering 13 per second with PoW, increase with the transition to PoS. Note also that according to some experts, PoS is 2,000 times more energy efficient. These two major assets should increase the enthusiasm around Ethereum and therefore the Ether token, but also the many tokens and decentralized finance projects based on this blockchain. It is however important to note that The Merge also has some drawbacks and the first of these is the return to a more centralized system. Those who have the most tokens are also those who will validate the transactions the most, thus setting up a system that is more oligarchic than decentralized. In addition, the cost of transactions on Ethereum, which is quite high, should not experience a major change with The Merge. Nevertheless, this event eagerly awaited by the entire cryptosphere could well reshuffle the cards of the ecosystem and participate in a notable rebound in Ether and many crypto currencies in its wake.
Ripple, Binance Coin, Dogecoin: the average cryptocurrencies
But there are many other virtual currencies. We can notably cite in the medium cryptocurrencies, which represent between 0.8% and 2% of the total capitalization of cryptocurrencies, the Ripple for example, which is not only a cryptocurrency (XRP) but also a transfer system operating independently. of the XRP token. It is primarily a digital payment protocol intended to facilitate interbank payments. Binance Coin, Dogecoin, Litecoin, Cardano, NEM, Monero, Stellar, or Iota or even Solana are also cryptocurrencies regularly among the 10 most important cryptocurrencies.
Small cryptocurrencies and shitcoins
Small cryptocurrencies, which represent less than 0.8% of the total capitalization of crypto assets, still together represent nearly 15% of the total cryptocurrency market. Be careful when investing in very small crypto currencies, caution is required. Even if the dream of every investor is to invest in the next bitcoin in the early stage, most small cryptocurrencies will remain so. Since the creation of Bitcoin by Satoshi Nakamoto, nearly 20,000 cryptocurrencies have emerged. Among them, a non-negligible proportion of crypto currencies without a real track record will never be able to appreciate in value. They are called shitcoins. This rather crude and fundamentally pejorative term designates active cryptos without specific objectives which display a very limited capitalization, with no prospect of real capital gains. They can multiply in the expansion phase of the cryptocurrency market and tend to disappear when the market experiences a crash and begins a bearish period. It is therefore always better to check before investing in a token if it has real growth prospects, what project has been put in place behind it, and the degree of seriousness of its roadmap.
It should be noted that there are many crypto currencies, that new ones can emerge and challenge the heavyweights of the sector, but also that disagreements within a community can lead to a “fork”, i.e. a split within the community and the creation of a new currency based on the technology of the old but with modifications.
Bitcoin for Dummies: The Essential Vocabulary for Getting Started with Cryptos
First cryptocurrency to have emerged in 2008, Bitcoin remains predominant and alone represents approximately 45% of the capitalization of all cybercurrencies. It remains the locomotive of the entire market, very sensitive to fluctuations in the main virtual currency. Note: since around 2020, the price of Bitcoin has been more or less correlated to the stock market price of Tesla shares.
This technology makes it possible to list all the blocks in the transaction chain of a cryptocurrency. It allows the storage and transmission of information necessary for transactions in a transparent and secure manner, without a control body. It is more or less a public, anonymous and tamper-proof accounting register.
This branch of mathematics based on the resolution of complex mathematical problems is the basis of the verification and security of transactions carried out on a blockchain.
The acronym DeFi for Decentralized Finance, or in French “decentralized finance”, designates an ecosystem of financial services, without financial intermediaries thanks to blockchain technology. The objective: to create an alternative monetary and financial system without resorting to traditional players. Its most well-known applications are cryptocurrencies but also for example borrowing and lending platforms.
An exchange platform is a platform allowing to exchange crypto-currencies between them but also to buy or sell them by exchanging them against a currency having a legal tender. Some exchange platforms, like Coinbase, also allow you to keep your cryptos active.
A Fork is a split following a disagreement within a community most often regarding how to use blockchain technology, resulting in the creation of a new cryptocurrency from an old one. The original cryptocurrency and that resulting from the fork coexist, without however the new necessarily taking precedence over the first. The best-known fork is the one that gave birth to Bitcoin Cash in 2017, without it managing to establish itself as a real alternative to Bitcoin.
It is a currency issued by a central bank and having legal tender in one or more countries such as the euro, the dollar, the yen, etc.
This fundraising in virtual currencies is an innovative way for a company to raise capital by issuing tokens instead of issuing shares.
Mining refers to the action of mining, which consists of making the computing power of one’s computer available to confirm and increase the security of transactions taking place on the blockchain. In return, the miner is rewarded with tokens.
Are called service providers on digital assets the “financial intermediaries who offer various services relating to the investment in crypto-assets” according to the AMF which created this status in order to better regulate the activities of purchase / sale and custody of crypto -assets. There are two levels of PSAN that it is important to distinguish: registration, mandatory, and approval, optional.
Registration of all PSANs is mandatory when they practice one or more of these activities:
- custody of digital assets on behalf of third parties;
- the purchase and sale of digital assets against a legal tender currency or against other digital assets (brokerage);
- operation of a digital asset trading platform (stock exchange);
- other digital asset services such as receipt and transmission of orders on behalf of third parties, portfolio management on behalf of third parties, advice, underwriting, guaranteed placement and non-guaranteed placement.
These virtual currencies are indexed on traditional assets such as FIAT currencies (dollar, euro, etc.) but also on precious metals such as gold for example. They therefore benefit from a stability that stands out in the world of crypto-currencies and gives it their name. Two types of stablecoins exist: classic stablecoins which have a quantity of the underlying equal to the value of the capitalization of the cryptocurrency in reserve, as well as algorithmic stablecoins which are based on another cypto and whose prices are maintained by a balancing act which consists in destroying part of the tokens of a crypto when tokens of the other crypto are created.
At the root of proof-of-stake, staking involves locking up a portion of one’s crypto wallet to help support network operations. In return, the holder of the locked tokens receives a reward.
A token is the token of a cryptocurrency. Bitcoin is the token or token of the Bitcoin network; Ether is the token or token of the Ethereum network; the XRP token is the token or token of the Ripple network, etc.
This term refers to a digital wallet that allows you to keep your crypto assets. There are two types of Wallet: hard wallets which are physical wallets (USB key) and soft wallets which are online wallets (software, app, etc.)
We call “whales” the big investors in virtual currencies who can, by selling or buying assets, cause the price of the crypto currency to fluctuate.
Prices of the main cryptocurrencies of the day
What is cryptocurrency used for?
Virtual currency as a means of payment for the purchase of goods and services
Why do we use cryptocurrency? Like any currency, cryptocurrencies enable the purchase of goods and services. Not being subject to a central authority and escaping any regulation, they have long been the prerogative of illegal transactions (ransomware, drug trafficking, etc.) but they are tending to get rid of their bad reputation by democratizing and attracting a wider audience. Cryptocurrencies are now increasingly used for legal transactions.
Virtual currencies, like Bitcoin, allow the purchase of many common consumer goods. It is for example possible to buy with Bitcoins, computer equipment of course, but also foodstuffs, jewellery, decorative objects, cultural products, etc. Overstock, a general merchant site, accepts payment in Bitcoins, just like Shopify. Paying for everyday goods with other cryptocurrencies is more difficult, but not impossible. Ethers, for example, could be used to buy works of art exhibited by young artists at La Compagnie (Paris X) in the spring of 2017. The virtual currency which wants to compete with Bitcoin thus did, on this occasion, his entry into the real world. At the end of 2020, Paypal said in a statement that it intends to “join the cryptocurrency market […] by allowing customers to buy, sell and hold bitcoins and other digital assets, using PayPal’s online wallet accounts. society “. This announcement makes it possible to envisage a certain and rapid democratization of the virtual currencies that will be offered by this online payment giant.
Several brands, especially luxury brands, also offer payment in crypto currencies such as Tesla (derivative products are payable in Dogecoin), or Off-White or Gucci.
Some exchange platforms can also allow you to pay your daily living expenses with your crypto-currencies such as Bitpanda with the Bitpanda Card which allows you, in real life, to spend your financial assets held on the exchange platform. It is therefore possible to buy a coffee in Bitcoin for example, in any store. Indeed, during the transaction, the digital financial assets are converted into euros to make the payment.
Despite everything, it is more difficult today to carry out a daily transaction in crypto-currency than with the currency that is current in the country where you live. Ditto for digital payments. However, cryptocurrencies could ultimately lower the cost of a digital transaction. And the financial and banking sector is watching these advances very closely. In the future, electronic payment based on cryptographic proof could be the norm. Enough to embarrass the banks by forcing them to completely review the transaction model!
Today, many cryptocurrencies are used to purchase specific digital goods and services, related to the project behind the cryptocurrency. We will come back later in this article to the usefulness of the token.
Cryptocurrency as a financial asset for investing
Crypto-currencies must find their balance between means of payment and financial asset. Because it is indeed an asset on which investors have positioned themselves en masse in recent years. For many people who have flocked to these new kinds of financial assets, crypto-currencies are above all a potentially profitable investment.
However, are virtual currencies an investment like any other? What is certain is that digital alternative currencies can constitute a new kind of investment, while participating in the new digital economy. It is common to include cryptocurrencies in the category of miscellaneous goods and other atypical investments. This typology is relevant in the sense that it enjoins caution and investing only a very small part of one’s capital in such assets.
Cryptocurrency as a means of realizing capital gains
For several years, Bitcoin has been setting records in a succession of spectacular rises and resounding crashes. If we limit ourselves to the last few years, we can in particular speak of the rise that began at the end of 2020 and which continued at the beginning of 2021 with a high of more than 64,654 dollars on April 14, 2021 (the value of Bitcoin has multiplied by 10 over the previous 12 months), before experiencing a resounding crash on May 19, 2021 and losing 20% of its value. Closer to us still, we can cite the absolute record (for the moment) of Bitcoin at 68,600 dollars reached at the beginning of November 2021, without forgetting to mention the crash of December 4-5, 2021 during which Bitcoin went back below the bar. $45,000, then the May 2022 cryptocrash which saw Bitcoin drop below $30,000. In mid-May 2022, it lost more than 60% of its value from its all-time high in November 2021. Bitcoin isn’t the only one posting a dramatic decline. Almost systematically, we are witnessing a training of other virtual currencies in its wake. These are truly crypto crashes as they relate to very many tokens.
Thus, at the beginning of 2022, the crypto market lost hundreds of billions of dollars in capitalization before returning to growth in the context of the war between Ukraine and Russia. The armed conflict between the two countries has indeed had significant consequences on the cryptocurrency market. Russia, under economic sanctions and in particular prohibited from accessing the Swift system, has turned to crypto-currencies to circumvent this sanction and continue its financial exchanges out of sight. Ukraine, which legalized crypto currencies just before the invasion of Russia, accepts donations in Bitcoin, Ether and USDT. For these two countries, cryptocurrencies are also the way to combat the loss of purchasing power caused by the collapse of their respective currencies.
The crypto-crash of May 2022 finds its explanation in the threat of recession in the United States and the high inflation which persists, raising fears of stagflation. Added to this is the rate hike decided by many central banks. With this explosive cocktail, we obtain the fall of technology stocks and cryptocurrencies, less and less considered as a safe haven and more and more considered by institutional investors and fund managers as high-risk assets, correlated to the values of the Tech, started a bear market which worsened considerably with the difficulties of Terra Luna.
The staggering drop (-95%) of the Luna token and its stablecoin UST decoupled from the US Dollar has caused panic in the crypto market, instilling doubt about the stability of stablecoins. The decline continued in the weeks that followed, in exceptional but not unprecedented proportions. Indeed, Bitcoin has lost just over 63% of its value since November 2021, and Ethereum almost 60%. The total capitalization of the sector was around $3 trillion in November 2021 before falling to $940 billion in mid-June 2022, when the crypto fear&greed index reached 6/100. As of September 13, 2022, the total capitalization of the crypto market is around $1.07 trillion. If the market tends to go up slightly, we could see in the summer of 2022 a real panic among crypto investors. However, it is important to put things into perspective.
First, the fear&greed index has already reached such levels in 2017, even dropping to 5/100. Next, in its history, Bitcoin has already lost 80% of its value, but it has also already done twice + 2,000%! Finally, if we recorded on June 13, 2022 4.7 billion selling at a loss on Bitcoin, it is above all a question of new investors unaccustomed to such high volatility and in the grip of panic. Because at the same time, the big whales (which have more than 10,000 Bitcoins in their wallets) are starting to massively buy back BTC, a harbinger of recovery. We can also ask in this autumn of 2022 if the recovery is indeed taking place after a bullish surge in recent weeks, notably driven by Bitcoin and Ethereum. Be careful though, the recovery is not certain and we could again witness a massive fall in the ecosystem. The market can still fall: an asset that has lost 80% of its value can still lose 80% (in theory). However, The Merge should weigh heavily in the evolution of cryptos this fall. The success of this change could push the whole ecosystem and especially Ether and tokens based on the Ethereum blockchain.
Severe corrections remind investors that the meteoric rises in the price of crypto assets are accompanied by significant volatility! Despite everything, the increase in trading volume and the massive increase in the market capitalization of virtual currencies clearly indicate the interest of investors in these new financial assets. Investors remain attracted to these virtual currencies, capable of posting impressive performances that are matched only by their volatility.
Keep in mind that buying cryptocurrencies is more or less like betting on innovative technology and is therefore not without risk.
Crypto staking for regular income
Some crypto currencies also make it possible to generate income by simply holding them. This is for example the case of Decred (DCR), Cosmos (ATOM), Tezos (XTZ) or Algorandi (ALGO). This is called staking, a term derived from “proof of stake”, i.e. proof of possession or proof of stake. In exchange for holding locked tokens, used to validate transactions, the individual investor who holds them receives rewards (most often interest, or even compensation in tokens).
The interest for the network is twofold: on the one hand, this practice allows better security of the exchange network and a reduction in Blockchain energy consumption; on the other hand, holding the token in question causes a scarcity of supply and a rise in price.
Lending and borrowing to benefit from passive income at an advantageous rate
Besides staking, there are other ways to make money with your cryptos: through lending and borrowing.
As its name suggests, lending consists of lending its crypto-currencies. This means, as with staking, that you deposit cryptos on a platform, without touching it for a fixed period of time. But, unlike staking, income from lending is tied to lending your cryptocurrencies to a third party. Indeed, the platform will take care of lending them for you and will pay you part of the interest.
The corollary of this practice is borrowing, which means to borrow. In this case, you pledge your own cryptos to the platform (which earn interest), which gives you the right to borrow a roughly equivalent sum that you can use to buy another growing crypto, with or without leverage, and realize a capital gain.
Stablecoin: cryptocurrency as an investment medium on a given underlying
Finally, virtual currency can also be used to invest in financial assets that have nothing to do with virtual currency. Thus, stable coins are cryptocurrencies backed by an underlying whose variation they replicate. These include Tether (USDT), indexed to the dollar, as well as Terra USD, USD Coin or Dai. The Tether Gold and Pax Gold cryptocurrencies are, as their name suggests, pegged to gold. Their low volatility (in theory) reduces the risk of a cryptocurrency portfolio. But stablecoins are also exchanged very easily and very simply (sometimes much more easily than the underlying to which they are linked). Finally, the capital gains are secured and converted into stablecoins (if 1 USDT = 1$, if the dollar goes up, you will own more Tether). Thereby,
The icing on the cake: stablecoins can allow you to secure your capital gains in crypto without being taxed. Indeed, to collect a capital gain in crypto-currency (such as Bitcoin for example), you can convert it into a stable coin rather than recovering your earnings in euros. Indeed, the capital gains realized during operations involving a conversion of your crypto-currencies into national currency are currently taxed at the flat tax. If you stay in the Blockchain, you are not taxed. This practice, known to experienced active investors, therefore makes it possible to delay and reduce taxation.
Be careful though: stablecoins are not as reliable as one might think. First, be aware that there are two categories of stable coins: classic stable coins which have a given quantity of underlying in reserve which allows them to issue a corresponding number of tokens, in theory relatively reliable, but be careful to stablecoins that don’t have as much fiat currency (or any other underlying) as they claim; algorithmic stable coins whose indexing is guaranteed by another cryptocurrency whose price is maintained thanks to a “decentralized oracle” which consists of validating every X blocks what is the price of the underlying. The algorithm then destroys tokens of the crypto currency to which the stable coin is linked to maintain the course in the event of a dropout.
If on paper the technique may seem perfect, in reality, in the event of a crypto crash, the situation could turn out to be catastrophic. Both Terra and Dai have failed to maintain long-term indexation and algorithmic stablecoins, in addition to being targeted by regulatory authorities, no longer enjoy investor confidence. It must be said that no algorithmic stablecoin has been able to impose itself over time. The Terra Luna scandal should reshuffle the cards of the stablecoin sector, however in full swing.
Crowdfunding crypto-equity: another use of crypto currency
Finally, crypto-currencies have another function, more niche but just as important: the financing of projects by raising funds from people (individuals and institutional investors or business angels). You may be wondering: what is a cryptocurrency ICO? It is neither more nor less than a fundraiser in cryptocurrencies.
Crypto-currencies can indeed also be used to finance companies via crypto-equity crowdfunding, crowdfunding in virtual currencies. The process, which has been widely developed since 2014, consists of financing equity-crowdfunding using virtual currency. This type of practice is referred to as ICO or Initial Coin Offering. Several platforms offer this solution, such as Swarm for example.
Cryptocurrency: an anti-crisis safe haven?
Cryptocurrencies are also often given safe haven status. Some even see them as a bulwark against inflation. If the coronavirus crisis has also impacted the price of crypto-currencies which have experienced a massive drop since the confinement of populations in the hope of stemming the Covid-19 epidemic, they have largely caught up at the end of the year. year 2020 and overall continued their bullish rally in 2021, until the crypto crash of May 2021 from which they recovered quickly and strongly. Cryptocurrencies have finally succeeded in this troubled context to establish themselves as a safe haven. As Nathalie Janson, Economist and teacher-researcher at NEOMA Business School, pointed out at the beginning of December 2020: “radical economic uncertainty, negative rates, weak dollar” are all factors that contribute to the rise in the price of crypto currencies. “In recent months, we have started to hear a clear and categorical discourse explaining that bitcoin is becoming a store of value in the form of digital gold,” explains Jeroen Blokland, head of the multi-asset team at Robecco in a press release. April 2021 press.
It is not uncommon indeed for crypto currencies to be compared to gold, considering that it is, in both cases, a safe haven.
Jerome Powell, the chairman of the US Federal Reserve, even recently declared that bitcoin is “essentially a substitute for gold rather than the dollar”. Only it lacks the historical status of a store of value. But their recent creations can allow us to consider Bitcoin and other crypto currencies as the digital gold of younger generations who do not have the same relationship as the previous ones with the precious yellow metal.
But what then of the crypto crash that occurred in early December 2021 in response to the 5th wave of the epidemic in Europe and the emergence of the Omicron variant? The virtual currency market, like the stock market, took fright in the face of the health threat. And the cryptocurrency market has since seemed very correlated to the equity markets, sinking into abysses that can give crypto investors cold sweats. Thus, since the beginning of 2022, Bitcoin seems to behave more like a speculative asset than a reserve value. Its correlation with the stock markets could even pose a problem.
Not only are crypto currencies sensitive to falling markets, but they can also accentuate this phenomenon insofar as institutions are now influential players in the virtual currency market who, in the event of euphoria on cryptos, can reallocate part sums on the stock market, but who in the event of a crypto-crash will have much less money to invest in traditional financial market assets. Thus, the fluctuations of the crypto market now seem to be correlated with those of the financial markets, and this correlation also contributes to accentuating market developments, either by creating bubbles through an excess of available liquidity, or by amplifying crashes after having erased a few hundred billion dollars of capitalization. in the event of euphoria on cryptos can reallocate part of the sums on the stock market, but who in the event of a crypto-crash will have much less money to invest in traditional assets in the financial markets.
Thus, the fluctuations of the crypto market now seem to be correlated with those of the financial markets, and this correlation also contributes to accentuating market developments, either by creating bubbles through an excess of available liquidity, or by amplifying crashes after having erased a few hundred billion dollars of capitalization. in the event of euphoria on cryptos can reallocate part of the sums on the stock market, but who in the event of a crypto-crash will have much less money to invest in traditional assets in the financial markets. Thus, the fluctuations of the crypto market now seem to be correlated with those of the financial markets, and this correlation also contributes to accentuating market developments, either by creating bubbles through an excess of available liquidity, or by amplifying crashes after having erased a few hundred billion dollars of capitalization.
However, it is clear that the war in Ukraine has allowed crypto-currencies to reconnect with their role as a safe haven. Like gold, they took advantage of the troubled situation. But they were also widely used by the two countries in conflict who used them as an alternative to combat the loss of purchasing power of their currency. The Russian-Ukrainian conflict has highlighted the role of crypto currencies – and particularly Bitcoin – as a store of value, particularly in the face of the collapse of the Russian ruble (RUB) or the Ukrainian Hryvnia (UAH).
However, the May 2022 cryptocrash seems rather to indicate this time that cryptocurrencies have behaved more like risky tech-related financial assets with a very high correlation to the Nasdaq rather than assets allowing to face inflation. . It therefore appears that depending on the situation, cryptos may or may not take on the role of safe haven. The fear index, the geopolitical context and the macro-economic outlook will tip the balance more towards one or the other.
The upward tremor of cryptos in this return to 2022 corroborates this discourse. While the Fed multiplies rate announcements and the job market is holding up well in the USA, US equity markets are gradually recovering, and in their wake crypto assets.
Cryptocurrency: what trends and what prospects for 2022?
While on September 7, 2021 El Salvador made Bitcoin its national currency, Bitcoin supporters see this news as a great way to facilitate money transfers with the Salvadoran diaspora while its critics point the finger at the volatility of Bitcoin and consider the bet very risky. Incidentally, Bitcoin plunged when it was launched in El Salvador. This event was accompanied by very high volatility which added fuel to the fire. Now, El Salvador offers secured loans in Bitcoin. In the spring of 2022, it was the Central African Republic which, alongside the CFA franc, adopted the BTC as its official currency. The central bank of Cuba has announced its intention to issue licenses for bitcoin.
Conversely, other countries legislate against virtual currencies. In the fall of 2021, China dealt a blow to the industry by banning the mining and use of cryptocurrencies. But, at the same time, the United States seems to have taken up the torch. The SEC cleared the first ETF on Bitcoin in October 2021. At the end of January 2022, Google Cloud announced the creation of a new team dedicated to digital assets and blockchain. The Mayor of New York’s January 2022 salary was paid to him in Bitcoin and Ethereum. Cryptocurrencies never cease to be talked about.
Note also the interest of many heavyweights in the finance sector in the United States. So, in early September 2021, John Paulson, the financier who predicted the subprime bubble, predicted a very bleak future for cryptos, anticipating the bursting of the bubble and betting that they would eventually prove worthless. However, his vision is far from unanimous. For example, Paul Tudor Jones has invested heavily in Bitcoin and in June 2021 reaffirmed his attraction to Bitcoin, declaring on CNBC’s microphone: “I love Bitcoin”. Ray Dalio (Brodgewater) acquired some bitcoins last May. Finally, we will also mention Cathie Wood, a fervent supporter of cryptocurrencies who predicts a Bitcoin at $500,000.
If virtual currencies are still, and perhaps more than ever, talked about, it is because these assets now represent a considerable weight (about 1,070 billion dollars as of 09/13/2022 according to Coinmarketcap). In addition, the outsized performance of many crypto assets, combined with extreme volatility, is fascinating. For example, in 2011, BTC fell from $30 to $2. In 2012, it dropped from $220 to $70. In 2016, it went from $1,100 to $200, in 2018 from $20,000 to $3,000, and finally from around $68,000 in November 2021 to around $28,000 in May 2022, and fell below the bar. of $20,000 in June 2022, a drop of more than 50% since the start of 2022.
The war between Ukraine and Russia has put cryptocurrencies back in the spotlight. As we have seen, they indeed play a major role in this conflict by serving as a reserve value for the Russian and Ukrainian populations who are suffering from the devaluation of their respective currencies. They also allow Russia to partially circumvent economic sanctions and Ukraine to receive donations quickly and easily.
Ranking of virtual currencies according to their market valuation in June 2022
Coinmarketcap.com ranks cryptocurrencies based on their market valuation.
You may be wondering which cryptocurrency to buy or looking for information on which cryptocurrency to invest in or which cryptocurrency to trade. Investors often favor cryptocurrencies with a large market capitalization and relatively high prices, which reflects a certain confidence in the currency and the relative strength of the token.
Discover the ranking of the 10 most important virtual currencies taking into account their market capitalization, that is to say the total value of all the tokens in circulation (price of a token X number in circulation).
1. Bitcoin (BTC)
Date of creation: 2009
Market capitalization as of September 13, 2022: $430.247 billion
Price change over 1 year (USD): around -52%
2. Ethereum (ETH)
Creation date: 2015
Market cap as of September 13, 2022: $212.097 billion
Price change over 1 year (USD): around -50%
3. Tether (USDT)
Creation date: 2015
Market capitalization as of September 13, 2022: $67.835 billion
Price change over 1 year (USD): around -0.3%
4. USD Coin (USDC)
Creation date: 2018
Market capitalization as of September 13, 2022: $51.485 billion
Price change over 1 year (USD): around -0.005%
5. Binance Coin (BNB)
Creation date: 2017
Market capitalization as of September 13, 2022: $47.493 billion
Price change over 1 year (USD): around -29%
6. Binance USD (BUSD)
Creation date: 2019
Market capitalization as of September 13, 2022: $20.158 billion
Price change over 1 year (USD): around -0.04%
7. Ripple (XRP)
Creation date: 2015
Market capitalization as of September 13, 2022: $17.669 billion
Price change over 1 year (USD): around -68%
8. Cardano (ADA)
Creation date: 2017
Market capitalization as of September 13, 2022: $17.187 billion
Price change over 1 year (USD): around -79%
9. Sunshine (SUN)
Creation date: 2020
Market capitalization as of September 13, 2022: $13.626 billion
Price change over 1 year (USD): around -76%%
10. Polka dots (DOT)
Creation date: 2020
Market cap as of September 13, 2022: $8.697 billion
Price change over 1 year (USD): around -79%
What makes a cryptocurrency valuable?
Why is a cryptocurrency going down? Why does a cryptocurrency fall? How does a cryptocurrency increase in value? Find out what factors affect crypto prices.
Trust in virtual currency
First, as with any currency, virtual or real, the founding element is trust. People need to have confidence in cryptocurrencies in general and confidence in a particular cryptocurrency, but it is not impossible, far from it. During the Greek crisis, some massively bought Bitcoin, a currency that inspired them more confidence than the real and regulated one, which was bearing the brunt of the monetary crisis and had to deal with galloping inflation.
In addition, to flourish and see its price progress, a cryptocurrency needs a favorable regulatory framework and a benevolent approach from regulators. Trust can also be the source of a public figure’s enthusiasm for a particular cryptocurrency or cryptocurrency in general.
At the beginning of 2021, it was the sudden appearance of the single word “Bitcoin” in Elon Musk’s Twitter biography that caused the virtual currency’s price to soar, shortly before the whimsical billionaire announced that he had invested 1.5 billion dollars in Bitcoin and offers Tesla customers to buy their car with the most famous cryptocurrency. The boss of SpaceX and Tesla poses as a true influencer and ambassador of Bitcoin, participating in creating a feeling of confidence in this cryptocurrency in particular, but also in cryptocurrency in general. Elon Musk has indeed also supported DogeCoin.
Note, however, that the releases of Elon Musk also produce the opposite effect according to the content of the remarks made by the boss of Tesla. Thus, on May 13, the latter finally returned to the possibility of buying a Tesla in Bitcoins. The May crypto crash shortly followed this statement. On June 4, 2021, bitcoin lost up to 8% after a tweet from Elon Musk suggesting a potential break from the first cryptocurrency by posting a heartbroken emoji and a reference to a popular song by rock band Linkin Park.
The number of cryptocurrency users
What also makes the value of a virtual currency is the importance of its network and the number of people who use it all over the world.
The more users a cryptocurrency has, the more its value increases, which means the price of the token goes up.
Two essential factors will push people to buy a virtual currency: the penetration rate in the real economy (that is to say the ease with which one can buy in real life goods and services by paying with said crypto- currency) and the prospect of positioning oneself on a crypto-asset by realizing a relatively significant capital gain.
Speculation is still the main driver for the development of crypto-currencies and their prices vary considerably depending on the appreciation of traders who think they can make money easily or not on this or that token, creating bubbles like in 2017-2018 . Intrinsic value doesn’t really come into play. And the situation is likely to persist as long as demand in the real economy remains relatively weak.
Remember, however, that users of virtual currencies are more and more numerous. Crypto-currencies are no longer niche financial assets but do represent a major trend in the sector. Their importance in the economic and financial sphere is growing. In 2021, there was more money saved on Ethereum than on Visa.
The growing democratization of virtual currencies boosts the price of cryptos
The democratization of virtual currencies reflects the growing confidence of the general public in this type of asset. Individuals will now be able to pay for more purchases of goods and services via virtual currencies with their Paypal account as we have seen previously or with the future Facebook token, the Diem, which will make it possible to pay for purchases on the marketplace of the famous social network.
Governments and central banks are also more inclined to adopt virtual currencies with an effort made on the regulation of crypto currencies and the emergence of central bank digital currencies. El Salvador is the first country to make Bitcoin legal tender. Will this provision be adopted by other countries? Nothing is impossible. Finally, the financial markets also seem to make room for cryptos. Many brokers now offer to invest in virtual currencies. Several large investment banks have a unit dedicated to crypto-assets and more and more traditional funds and hedge funds are positioning themselves in crypto-assets. Another notable event: Coinbase, the American cryptocurrency exchange platform, went public in April 2021.
The project behind the crypto-currency: when the utility of the token contributes to the success of the token
Increasingly, cryptocurrencies are not created with the objective of replacing a fiat currency or to access an alternative service to traditional finance but to buy goods and services specific to the token. Originally, many cryptocurrencies were created to offer an alternative to traditional finance. Thus, Bitcoin is a decentralized currency intended to pay for goods and services like any traditional currency, but without having to suffer from inflation or currency devaluation. In addition, it allows secure, fast exchanges, outside the usual financial circuits.
With Ethereum, the goal was still to simplify financial flows by making them even faster and cheaper. The Ether token is used to pay transaction fees. Binance is an exchange platform whose token is the Binance Coin which provides access to many financial services on the platform (staking, lending and borrowing).
Today, with the emergence of web 3.0, many tokens are being created to give life to Metaverse like The Sandbox for example, the token that allows players to buy virtual assets in the video game of the same name.
How to invest in cryptocurrency in 2022?
The major survey “Crypt: structuring of the sector and adoption by the general public” carried out by KPMG France with the IPSOS institute reveals that:
More than a fashion effect, investing in crypto-currencies seems to be a fundamental trend. In this context, it is important for Café de la Bourse to support investors in this very specific sector.
You are one of the many French people who do not know how to buy cryptocurrency but you do not lack the desire and you do not know how to proceed? Find here our explanations and advice to position yourself on the cryptocurrency.
How much to invest in cryptocurrencies?
Volatility and speculation are the key words. Investing in cryptocurrencies comes with a very significant risk of capital loss.
Cryptocurrency belongs to the family of alternative investments or exotic investments, which must represent 5% to 10% maximum of your financial assets, depending on your risk profile.
Please note that this percentage must represent all of your alternative investments. This means that if you are very risk averse and want to be invested in cryptocurrencies and gold, for example, you should not have 5% of your capital in cryptocurrencies and 5% of your capital in gold but gold and crypto-currencies together should not exceed 5% of your financial capital.
When to invest in cryptocurrencies?
The volatility of crypto-currencies is very high and it is often accompanied by a temptation for investors to do market timing. Warning: if the idea is attractive on paper, remember that the market is impossible to time. So you risk heading straight for disaster.
Two much more sensible methods can be applied:
- the DCA (Dollar Cost Averaging) which consists of investing the same amount at regular intervals;
- the purchase on the lowest which consists in averaging its downward entries by investing during crashes and when the prices of the crypto are lower than its average over the last 12 or 24 months for example.
Should you invest in crypto currencies following a crash?
Once or several times a year, cryptocurrencies experience resounding crashes. The most recent took place in May 2022 and seems to be settling in for the long term with a pronounced bear market which continues in June 2022. These spectacular price drops can constitute a privileged entry point into the crypto market. But be careful to keep in mind that these assets are very volatile and that the next fall will probably be at your expense.
However, if you are particularly risk averse and invest in virtual currencies with a long-term perspective, it may be interesting, with each crypto crash, to invest again in this market. Those most convinced by the potential of cryptocurrency can, ignoring the crashes, opt for the programmed investment in cryptocurrency and invest the same amount every month or quarter. Beware, these sudden and spectacular drops in virtual currencies should remind investors that investing in these assets via leverage is particularly risky!
2 ways to buy your virtual currency
There are two ways to get crypto currencies:
- by selling a good or service and demanding payment in the cryptocurrency of your choice;
- by converting “classic” currencies (euro, dollar, etc.) into encrypted currency.
Kraken, Bitstamp, Poloniex, Coinbase, or even Circle, for example, make it quite easy to convert euros into Bitcoins, or even into other virtual currencies.
To convert your euros into Bitcoins, you must register on an exchange platform by providing an electronic copy of an identity document and a recent bill (gas, electricity, internet) to prove your address.
Choose your cryptocurrency exchange platform or virtual currency broker
Cryptocurrency exchange platforms such as Coinbase, Bitpanda or even Binance or LiteBit make it possible to acquire and exchange crypto assets directly, without going through derivative products.
To avoid scams and see more clearly in the offer of intermediaries in crypto-currencies, the Pacte law has set up a new specific regime governing these digital asset service providers (PSAN). According to the AMF, these PSANs bring together all the “financial intermediaries who offer various services relating to investment in crypto-assets”. Since December 2020, these PSANs must, in order to be able to offer services for the custody of crypto-assets or access to crypto-assets or the purchase/sale of crypto-assets against currencies having legal tender, must be registered. with the financial market policeman who will ensure the reliability of the service provider. Any actor who does not register may end up on the AMF’s blacklists. In addition, an optional approval can also be requested by the PSAN which, after having obtained it, will have the right to solicit new customers. Indeed, two levels of PSAN exist: registration, mandatory for 4 types of services, obtained by 37 players to date, and PSAN approval, optional, more demanding, and protective for the investor. No PSANs have been approved at this stage.
Note that a digital asset service is considered to be provided in France when it is provided by a digital asset service provider with facilities in France or at the initiative of the digital asset service provider to customers residing or established in France.
Before any investment and any transaction, check that the player with whom you plan to do business is not on the AMF blacklists, that it is registered with the Autorité des Marchés Financiers and, if you you are canvassed, that this actor has the authorization which gives him the right to do so.
Create a cryptocurrency wallet
Whatever your method of obtaining, you will need to create a “wallet” in order to receive, send and above all keep your crypto currencies.
A cryptocurrency wallet is an address in the form of a sequence of numbers which is accessed using a password.
There are two types of cryptocurrency wallets: the hardware wallet and the software wallet.
Hardwallets or physical wallets are software contained on the equivalent of a secure USB key in order to keep your keys and your access to your wallet. Hardare wallets are the most secure cryptocurrency wallets, but their use may be considered restrictive by investors. Indeed, some require you to connect the device to the computer each time you use it. The best known are Ledger and Trezor.
Software wallets are platforms available online, either a mobile application or a website, which allow you to keep your different keys securely. If their use is simplified, they can however be blamed for their security flaws which make software wallets more risky. The best known software wallets are Coinbase, Binance and Kraken.
How to trade a cryptocurrency
Since June 1, 2021, it has been possible to invest on the Paris Stock Exchange in Bitcoin or Etehereum via listed index products. These ETPs (Exchange Traded Products), financial products relatively close to ETFs, track the evolution of Bitcoin or Ethereum prices. VanEck, 21Shares, ETC Group and WisdomTree now offer ETPs on Euronext Paris and Amsterdam which allow French retail investors to position themselves relatively easily in the two main crypto currencies in terms of capitalization.
6 tips for investing in cryptocurrency
Find our 6 tips for investing successfully and knowingly in a cryptocurrency.
1. Understand Blockchain technology well
Before investing in this type of currency, make absolutely sure that you fully understand this innovation and in particular the technology behind it. This ultimately comes down to fully studying the Blockchain technology from which cryptocurrencies originated. Pay attention also and above all to the details that differentiate the currencies from each other: the programming language, the blockchain validation system, the governance, the ability of the currency to adapt to a change of order of magnitude demand for example.
2. Take into consideration the token expansion limit
The unit of crypto currencies is called token. The number of tokens created can be limited, as is the case with Bitcoin, which will be limited to 21 million Bitcoins in circulation, making the product relatively rare, which of course contributes to its value. But a cryptocurrency can also follow a deflationary pattern. In this case, the quantity of money in circulation is unlimited, which could over time favor the stagnation (or even the reduction) of its price.
3. Check virtual currency transparency
Prefer a cryptocurrency with a website with clearly identified investors and developers, a presentation of the project, possibly a roadmap indicating the planned technological advances. If none of this is accessible, distrust, you could invest in a Ponzi scheme.
4. Stay informed on cryptocurrency websites
To be up to date in this ultra-niche and ultra-geek field, and therefore ensure an investment in the best conditions by having all the information on the targeted asset, it is better to seek information where it is, i.e. on the web! Many cryptocurrencies offer their own website but broaden your research to community websites such as Reddit or Slack which will allow you to publish, consult articles, discuss and share issues and opinions. The Bitcointalk forum fulfills the same role but is exclusively dedicated to crypto-currencies (not just Bitcoin because it has a dedicated altcoins section).
5. Learn about the quality of virtual currency developers and their funding
What above all makes the success of a cryptocurrency is the quality of the developers who are at the origin of this innovation. So check their experience, training, work history, etc. Are they a tight-knit team with good rapport? You can verify that their exchanges on the Slack or Reddit community are both cordial and constructive.
Finally, you absolutely must know who pays the developers: a company or a private equity fund outside the cryptocurrency? Are developers paid with their cryptocurrency? The important thing is to be able to assess the motivation of the developers and any conflicts of interest.
6. Limit your investments in these high-risk volatile assets
Volatility is one of the major characteristics of crypto currencies. Thus, the value of a crypto currency, that is to say its price, can increase or decrease, very quickly, in an unpredictable way. In question: its young economy, its unusual nature and especially its sometimes illiquid markets. And the number of platforms further adds to the lack of liquidity of the tokens. Thus, at the end of 2019, “it only takes a volume of 143 bitcoins to vary its price by 1% on the Bitstamp platform. Coinbase and Kraken are much more liquid, and it is respectively 456 and 672 bitcoins that must be exchanged to move the course of the leader of cryptos by 1% ”reports the site Les Echos.
Investing in crypto currency is therefore not recommended for cautious profiles with high risk aversion. For others, remember not to keep a large part of your savings in Bitcoin or others which remain high-risk assets. There is a real risk of losing a large part of the money thus invested.
If the adventure of crypto currencies tempts you, start with money that you are ready to lose. It must be an investment representing a very small part of your financial assets. Cryptocurrency is more of an experiment to try if you feel like it than a reasoned investment made with a view to diversification. Wanting to make money very quickly is never a good reason to invest in cryptocurrency.
Cryptocurrency taxation 2022: how to calculate the capital gain and declare the gains in virtual currency
Capital gains generated by the activity of buying and reselling crypto currencies have been taxable as “digital assets” since January 1, 2019. It is the 30% flat tax that applies to gains from cryptocurrency trading activities. The taxpayer nevertheless has a transfer allowance of 305 euros per year.
Note: transactions are only taxable when converting virtual currencies into traditional currencies such as the euro, the dollar or even the Swiss franc, including if the money remains on the exchange platform without moving.
The amount of its capital gains must be indicated in the tax return, in the box “Capital gains or losses on digital assets”, to which must be attached the form 2086 providing the details of the taxable transactions.
A few questions about cryptocurrency?
The term cryptocurrency refers to both a virtual currency and the peer-to-peer payment system that accompanies it. These are virtual currencies without physical supports, not regulated by a central body and whose value is not indexed to a legal currency or a raw material.
You can invest in a cryptocurrency by buying tokens through a specialized platform. You can also trade crypto currencies through an online broker such as eToro, investing in a derivative product that has a virtual currency as its underlying. Be careful in all cases to devote only a very small part of your assets to this type of investment.
The price of a cryptocurrency is linked to the confidence it inspires among investors, to its technical characteristics, to the ease with which one can or cannot buy things in real life with it, but also to the possible more -value that virtual currency will achieve.
There are several reasons to use a cryptocurrency: to buy goods and services, to realize a short-term capital gain for the purpose of speculation or to invest in the long term in an innovative technology which is believed to be will revolutionize digital transactions.