Learning that the famous broker Josef Ajram will be giving a lecture in Valencia, Ángel (a fictitious name to protect his identity) signs up without hesitation with a university classmate. It was April 2014 and cryptocurrencies were not yet known in Spain. There they took the opportunity to ask him whether Bitcoin was a good investment. “We need to see how this market will develop because it is still in its infancy.”, responded to the Catalan investor. And they followed the advice to the letter until January 2021, when they started investing for the first time in their lives.
The pandemic catapulted cryptocurrencies in 2020 and into a real bullish frenzy in 2021; An all-time high of $66,000 per Bitcoin was seen in November. At that time, a lot of information and advertisements about cryptocurrencies began to circulate on social networks. Millions of young people entered this market, attracted by high profitability. But in 2022, the fiasco came: central banks took action against inflation, starting to raise interest rates and leaving cryptocurrencies illiquid due to fear of investors investing their money in risky assets. The decline was accompanied by the bankruptcy of FTXIt crashed Bitcoin by 25% between November 5 and 9. “I started making small purchases until I invested about 5,000 euros, got a return of about 1,000 euros, and now I have about 3,000 euros,” he laments.
Many of the young people who trusted cryptocurrencies did not know what the stock market was, but word of mouth encouraged them to invest some of their savings. After all, what could go wrong if everyone managed to double the initial amount? That’s what María thought two years ago. His friend wanted to take advantage of the strong rise in bitcoin, whose price was around $56,000. 25,000 euro investment. Other acquaintances of his had made money this way, and he would largely repeat the move. In the end, María couldn’t see it clearly and chose to keep her savings in her checking account, but her friend lost all the money. He used the last glimmer of hope he had to invest a little more in case it rose again. He lost that too. “Who would have thought if you saw the statistics and the price of Bitcoin was increasing,” María recalls.
This was the trap that convinced many people under the age of 35 to invest some of their money in Bitcoin and other cryptocurrencies. 2021 has been the best in history for cryptocurrencies, thanks to low interest rates after Covid-19 and monetary incentives from central banks. From American investment firm WisdomTree they explain: “Bitcoin price is highly correlated with the tightening or loosening of financial conditions: When the Federal Reserve flooded liquidity into the market, Bitcoin performed well and when you highlighted it it did the opposite”. Bitcoin is also closely correlated with the behavior of the Nasdaq technology index and major technology companies on Wall Street. “Its volatility also makes it unattractive as a means of payment and store of value.”They add from WisdomTree.
Since then, digital currencies have experienced a few scares. The decline, which started in March 2022, deepened on May 12. Sudden disappearance of Terra and Luna cryptocurrencies. Adding to these setbacks was the bankruptcy of FTX in early November of the same year. Bitcoin closed 2022 below $17,000, 64% below its value recorded 12 months ago. Following the bankruptcy of Silicon Valley Bank and Signature Bank, this calmness in 2023 seems to have returned to the cryptocurrency market with increases of 73%, although not as much enthusiasm as in 2021. This figure far exceeds the profitability of the US technology index Nasdaq, which has accumulated 28% for the year, or the Ibex 35, which has gained 12%. Of course, don’t be overconfident: the volatility of these assets does not rule out the possibility of a new ‘crypto winter’ in the coming days. Despite its gains, it is still 52% away from its historical highs.
Young people, crypto enthusiasts
The idea of a “cryptocurrency miracle” spread like wildfire among thousands of young people who do not know the basic principles of investing in the stock market. “In 2017 and 2018, there was a temptation to earn more with less investment.”“This is the biggest appeal for those who don’t know much about financial education,” says Víctor Ronco, an expert on digital currencies. This is the case of Fernando (made-up name to protect his anonymity). “I thought it was profitable,” complains this investor, who lost 3,600 euros two years ago. She informed him that it was his decision and that this was not enough.
Despite the losses, the impact continues to this day: According to the latest Retail Investor Bear research by eToro, 51% of Spaniards aged 18 to 34 invest in crypto assets and 23% think there will likely be an increase in their investment in the next three months. “There is no other asset class that has received such a high percentage of positive response, as in second place are currencies (15%) and traditional investments such as savings accounts, national stocks and Spanish bonds, all with a share of 10%,” he explains Tali Salomon is eToro’s regional manager for Iberia and Latin America.
Covid-19: the beginning of investment fever
The investment ‘boom’ came in 2020: “There were a lot of young people stuck at home who were able to save, sports betting was suspended and macroeconomic conditions were good with very low rates,” explains Ronco. At the same time, cryptocurrency exchanges have launched an aggressive advertising campaign on television, at bus stops, and also on social networks, attracting the attention of more young people. “Young people are much more influenced by emotions and social networks.”. A retiree does not fall into the trap of making quick money,” explains Ronco.
Also, there came a time when Cryptocurrency investment combined with entertainment attracting young people. In the summer of 2021, Carlos (invented name) came to Axie Infinity, a video game that operates through a blockchain network, a decentralized database, and is based on Ethereum, the second largest digital currency of the crypto AXS and SLP. The game is similar to Pokémon: Players must raise and train virtual animals called Axies to face battles, whose value in the game fluctuates depending first and foremost on the cryptoasset market, the player’s skill, and the digital animal’s genes.
When he started playing, Axies had an average value of $1000 and his ‘kids’ were being sold to other players for $400. Now they sell for five dollars. “I started with an investment of 10,000 euros, grew to around 25,000 euros, and today I have around 3,000 euros,” he says. “There was a real craze in the ‘gamer’ world; based on pressing a button and Its economy was not sustainable because it relied on more and more participants Investing in cryptocurrency linked to the game. “Some of it was fraud,” he laments..
Ad-free but educated
Related news
As a result of losses in the Stock Market, in some cases reaching millions, and numerous frauds committed with cryptocurrencies, the National Securities Market Commission (CNMV) gave the green light to the regulation of mass advertising campaigns for crypto assets in 2022. . Just before FTX’s demise, the CNMV also warned ‘influencers’ for spreading investment advice without complying with regulations. Since that time, Advertisements that bombarded every corner of cities have disappeared‘Influencers’ are no longer spending time on cryptocurrencies and ads on social networks are being flagged by the regulator.
What about investors? As in other market bubbles, very few young people learned from their bad investments. Ronco notes that although knowledge about the Stock Market has not been decided to improve in 2022, education is improving in 2023. One of these new students was Carlos: “I learned a little bit about how cryptocurrencies work by studying and investing. “If I had known, I would have sold it sooner,” he said.sentence.