It is a bad time to have invested in cryptocurrencies, with Bitcoin having lost nearly 50% of its value since its peak of around $30,000 in 2021.
Despite this, around one in ten households in the Euro area invested in cryptocurrencies in recent years, according to a report published by the European Central Bank on 24 May.
The highly volatile cryptocurrencies offer potentially massive profits, and even greater losses.
Many Europeans have been attracted to the new form of investment as means of get-rich-quick investing. These novel investments have been made more accessible in recent years, attracting middle-class investors who would normally avoid currency or stocks trading.
This type of investment still remains, mostly, the domain of the rich and the highly educated. According to the ECB, the largest proportion of crypto asset owners belong to the richest 20% of society, especially in the Netherlands.
Despite the extreme volatility of the market, total market capitalization of crypto assets reached €2.5 trillion at the end of 2021, around seven times higher than the year before.
At various points in the last few years, the price appreciation of various cryptocurrencies outstripped traditional investments such as gold, silver, and stocks in low-volatility companies such as Amazon, Google, Microsoft, Apple, and oil companies.
In November, the price appreciation of Bitcoin was a staggering 1,239%, offering massive incentives to those who had bought into the currency early on.
According to the data, the majority (66%) of private investors hold less than €5,000 in crypto assets, with most (37%) holding less than €1,000. Only 6% of private European investors hold more than €30,000 in cryptocurrencies.
Statistically, the Dutch are the most crypto-mad. Over 14% of Dutch households have assets in cryptocurrencies. In Spain and Italy, over 11%, and in Belgium just under 10%.
However, unlike other investments, President of the European Central Bank (ECB) Christine Lagarde has warned that cryptocurrencies are inherently “worth nothing” and do not enjoy the same levels of safety as other investments.
The ECB equally warns that the rise of cryptocurrencies may pose risks to “financial stability” on the European market.
There is a growing “interconnectedness” between “unbacked crypto-assets” and the traditional financial sector. That means when the value of Bitcoin, or other currencies plummets, it could bring Fiat money with it.
The ECB has called for urgent regulation in order to lessen risks to the financial sector from volatile crypto currencies and greater monitoring of financial stability risks from these assets.