Crypto for Dummies

Suddenly everyone is doing it and everyone has them: cryptos. At a dinner, it's about a bloodbath in the coins after a tweet from Elon Musk and I feel like I've missed the boat e-normously the whole time. Especially when someone tells me with a half-smile that he/she bought in five years ago and can now retire. But how does it work and what is true? I called the woman who knows everything about investing. Puck Landawé, founder of Fire for women, and asked for solid crypto info.

What almost no one knows about crypto but should know?
“Phew... I think many people invest in cryptos because they have heard a bell toll but do not understand the product well. The blockchain network, for example, is an extremely complex thing that lies behind many cryptos. The reason the first crypto-BTC was developed is that after the 2008 crisis, people were looking for an alternative payment system.”

Tell me, what is crypto actually and how does it work?
“Crypto is an overarching term for different functions. In most cases, we are talking about tokens (a technical application that represents a value) with different properties. The majority of crypto is not coins in the form of currency or money, although they are often called coins. There is almost always a financial component involved, but that does not make it a currency. The number of possible functions that can be assigned to the tokens seems almost infinite. Within cryptos, you have different types, such as Bitcoin, Ethereum, Polkadot, Aave, and Cardano. Bitcoin is, for example, besides a currency also a token, although many people refer to bitcoin as a coin in the financial sense of the word. Ethereum with ether is a bit trickier. You could say that ether gives everyone the freedom to create their own applications or smart contracts, which everyone can then use. It is intended as a form of value to execute computer programs and is therefore not a real currency. Cryptos are interesting because they can be safe and transparent in providing certainty about executed transactions. A well-structured blockchain network, one of the most important systems behind most crypto projects, ensures that every activity is recorded and cannot be changed afterwards. It also gives people the opportunity to conduct transactions among themselves without a third party having to be involved.”

Why does it seem like everyone is suddenly becoming very rich or suddenly poor?
“Cryptos exhibit very high volatility. That means that the price can sometimes shoot up and sometimes drop hard. In March, Bitcoin was at $63,000 and now it fluctuates around $33,000. That's almost a halving. If you had jumped on the hype in March, you would logically have lost a lot of money: half of your investment. Did you get in in March 2020, when the price was around €6,000 and sold at the peak? Then you made a lot of money. The volatility leads to enormous profits and unfortunately also to enormous losses.”

From a bloodbath to great heights, how can something fluctuate so enormously? And how is it possible that a tweet from Elon Musk has an influence on this?
“Difficult. The ‘problem’ with cryptos is that the value is determined by what we humans think it is worth. It works the same way with gold. And what we think something is worth has to do with many factors. Is it possible in the future to actually pay with Bitcoin, for example? Will Bitcoin still exist now that many governments are banning it? What are large institutional investors doing? Investment products and their value are determined, among other things, by supply and demand. If there is a lot of demand, the price rises, as long as the supply is scarce. A tweet from Elon can trigger a FOMO feeling in many people or make them hesitant, causing people to suddenly want to buy or sell. And when large masses do this, it affects the price.”

I also have the impression that especially many women are getting into crypto, is that correct?
“I have that impression too: there are many women active in the Fire for women community , but I cannot prove that with data.”

It suddenly seems like we are already too late with crypto, what is your vision on this?
“This is what almost every investor thinks who ever wanted to buy crypto. The value of, for example, Bitcoin has gone through different cycles. The coin could suddenly shoot up only to then drop back down unexpectedly. The coin has increasingly higher peaks and less deep valleys. So did you miss the boat? That depends on your goal and the timeframe. The entire bitcoin community expects another peak in 2021. Of course, no one has a crystal ball, but my vision is: invest for the long term, at least ten years. Are you afraid that money in cryptos will then be worth nothing? Then reconsider whether you want to invest in cryptos at all.”

If we get into crypto, where should we start?
“First, you need to understand investing. What is investing? What does it mean to invest your money? What is your plan or goal? What return and what risk do you want to achieve? Which products fit that? Maybe also a small portion of crypto. Then delve into what cryptos are, what strategy you can adopt, and where you can invest. Educate yourself about costs, risks, and types of cryptos. First learn, then invest.”

Do you have 5 concrete crypto tips for us?

• Only invest with money you are willing to lose (!).
• Make sure that the majority of your portfolio is in other – less risky – products.
• Why? First rule of investing: don’t lose money.
• Gain knowledge about yourself. When prices rise and everything is great, arrogance can arise. When prices suddenly crash, it can cause stress and panic. You can know so much about investing and cryptos, but self-knowledge is key. Do not act out of emotion. Make a plan and stick to it.
• If necessary, follow a good course on investing in cryptos, my tip is for example via Madelon Vos.
• And: join the Fire for women community, and find many like-minded women who chat about investing in cryptos.