Addicted to crypto coins
Here’s hoping they won’t crash
His first investment turned into a disaster.
Hamish Mardell, a spatial planning and design student, had spent a few hundred euros on cryptocurrencies. He’d heard the stories about people getting rich easily and thought it would be nice to pay off his student loan.
But then he lost the key to one of his wallets, as cryptocurrency accounts are called. And now the money’s gone. Or gone-ish, because he can still view the value of his coins. So he can see they’ve gone up to 2500 euros, but he can’t access the money, because he doesn’t have his authentication. And because this is not a bank and the accounts are managed by users themselves, there is no one to complain to and no one to help him.
That didn’t stop him from trying again with a new wallet, though. He’s invested most of his savings, ‘a sizable amount saved from a previous job’. ‘I always just spend what I can really afford to lose,’ he says. And now? ‘My initial investment is worth 35 times more.’
International and European law student Preslav Tanchev wanted a piece of the action, too. He started investing in crypto coins as soon as he turned eighteen years old, having thought about it since he was twelve.
I check the app ten to twenty times a day
Architecture student Tsjerk Wicherink bought coins after his flatmate got him hyped. ‘I don’t know what I’m doing’, he says. ‘No one does. It’s a gamble and a pretty large risk. But my curiosity definitely outweighed my doubts.’ Now, except for one flatmate, his entire house is on board.
A growing number of people invest in cryptocurrencies, hoping to get rich quick. But Bert Scholtens, professor of finance at the Faculty of Economics and Business, is hesitant about their merits.
‘When greed sets in, just like with gambling, it can become an addiction’, he says. ‘There is an appeal to easy access to wealth, and people are greedy. But these currencies are highly volatile and not very liquid. They are highly speculative investment objects, which makes them unsuitable as money.’
Tsjerk agrees that it’s addictive. ‘I have this app that I check ten to twenty times a day’, he says. Hamish, too, looked at his phone every hour of the day in the beginning to see how his coins were doing. ‘I’ve never bought assets that were rising so quickly. It feels like this frenzy. Everyone thinks they’re a genius.’
International relations student Son Vu has the same experience. ‘When you see all the charts turn green, you feel complete euphoria.’
The market can crash and may never recover
Cryptocoin enthusiasts find each other in groups on Reddit and Facebook or on Twitter, where they discuss strategies and hype each other up. Critics compare cryptocurrencies to a pyramid scheme, where people try to convince others to get in on an investment in order to boost their own gains. ‘Student investors need to become aware of the risks’, Scholtens emphasises. ‘Investing in cryptocurrencies is not an easy way to get rich.’
But these students feel it’s worth it. Tsjerk saw the value of his coins increase from 170 to 280 euros in two months. Hamish happily talks about the thousand euros he invested in dogecoin, right before an exam. When he finished his test two hours later, he found that its value had doubled.
Preslav has experienced how rapidly the value of coins can explode as well. ‘I invested in a coin that wasn’t very well known. At the time it was about two or three cents per piece. The next morning its value was at fifteen cents.’
Still, it does take work, they say. ‘I sometimes see people who don’t have any idea of what they’re doing’, says Son. ‘If you want to be serious about it, educate yourself first.’
Hamish started on his adventure easily enough. ‘This documentary was on and I was too lazy to move and watch something else. After about an hour I thought I was starting to understand how it works. From there I just kept going with it.’
It took him three months to familiarise himself with the workings and terminology of cryptocurrency. ‘I spent hours reading scientific papers to figure out how it really works.’ And the more he learned, the more he felt it’s the future of finance. ‘I believe that things will be pretty bad in terms of “real” money. History has told us that printing more money in times of recession won’t necessarily work.’
Son is honest about having made his share of mistakes with cryptocurrency. ‘I bought some dogecoin for eight cents a piece and it sank to five cents. I decided to sell it at a loss, but three weeks later it had quadrupled in value. I was feeling very stupid because I hadn’t been patient.’
Now, his strategy is to HODL, which is a popular acronym that stands for ‘hold on for dear life’. ‘I bet on currencies that I believe will do well in the long term and hope I don’t lose too much money in the process. It might take quite a while to make a lot of profit, but I’m trying to play it safe’, Son says. ‘Patience is key.’
‘I’ve never seen money go through the window so quickly
He doesn’t expect to become a millionaire, ‘at least not by next year’, because he knows investments like these are a big gamble. ‘You can get super rich, but there is also a high risk of losing your money. It’s a two-sided coin.’
‘The market can completely crash and may never recover’, Tsjerk agrees. ‘It seems like an easy way to make money, but you have to keep up. You can watch the news, but there isn’t much you can do to foresee a crash. Once we know, it’s too late.’
And then there’s the danger of being scammed. Block-chain technology makes crypto coin transactions extremely transparent and traceable, but no one stops you from setting up a fake profile. ‘There have been schemes where founders of crypto coins would take people’s money and run off’, Son says.
He’s learned to be more skeptical since he fell victim to a so-called pump and dump scheme – he’d rather not say how much that cost him. ‘People were hyping this coin in a Telegram group. They bought that coin very cheaply beforehand and convinced all of us to buy at the price it currently was, making us believe we would make huge profits’, Son says.
But that didn’t happen. ‘I’ve never seen money go out the window so quickly, it happened within seconds. Once they sold out, the price of that coin was never going to go back to its original value.’
The benefits still outweigh the drawbacks, they all say. Hamish feels the cryptos gave him ‘purpose’ during the pandemic. ‘I don’t want fast cars. I just want to save up for a future deposit on a house.’
What are cryptocurrencies?
Cryptocurrencies are digital ‘money’, secured by cryptography. In essence, they are computer programs. The coins companies issue are called tokens. They can be exchanged for goods and services online, but they’re mostly used to speculate.
The idea behind them is that having a decentralised system without banks and governments is safer and more stable. Users collectively retain control. The blockchain technology that facilitates most cryptocurrencies is considered extremely safe, because assets are distributed across a global ledger instead of being stored in one place.
Networks of specialised computers generate and release new tokens and verify transactions, a process called mining. It’s criticised for not being environmentally friendly.
‘It uses tremendous amounts of power’, Bert Scholtens says. ‘One transaction in bitcoin is estimated to cost 750 kilowatt, which equals two months of electricity for an average Dutch household. And a lot of miners operate in countries with problematic regulations, where energy is produced with dirty resources.’