Bitcoin: How cryptocurrencies stir up the financial world

Actually, it was predictable that at some point they would yell at each other. “That’s complete nonsense, there is no inflation with Bitcoin,” shouts someone with a blue sweater that says “Bitcoin is freedom”. His name is Benjamin Straub, he is one of the founders of the Stammtisch. “You just live in the wrong system,” he says to the man who is sitting exactly at the other end of the long table. By “wrong system” he means the – in his eyes – outdated financial system. And the discussion starts all over again. About how the (financial) world has to change and how Bitcoin, the best-known crypto currency, can contribute. It is an angry speech about everything that goes wrong with banks and financial institutions. A few people roll their eyes, a few laugh.

“The Ulm Bitcoin Stammtisch” is the name of the group. At almost every meeting there are new faces, old ones disappear. “We are as volatile as Bitcoin,” says Benjamin Straub and grins. Every third Thursday of the month they meet here at the Italian to talk about cryptocurrencies. It’s about blockchains, phishing, lightning, satoshi, networks – all technical terms that most other people probably have no idea about, about which they have only heard of once.

What was once the topic of conversation in a manageable nerd scene is moving slowly and creeping into the middle of society and swirling the financial world upside down. Some experts speak of an “early phase of the crypto evolution”. Others consider cryptocurrencies to be one of the most dangerous phenomena in the financial world.

According to a survey by the digital association Bitkom, 82 percent of those surveyed have heard or read about Bitcoin and Co. Even if they are called that, cryptocurrencies are actually not really currencies. They could best be described as “digital assets”. Behind these assets is a technique that involves inventing some kind of secret key. A code for a currency is pressed into this key and strung together in a digital chain. This is then called “blockchain” – the brain of the crypto currencies, so to speak. “It’s a completely new way of transferring money, around the clock across the globe – and without financial institutions,” says Sören Hettler, cryptocurrency expert and analyst at DZ-Bank.

“They wanted something new. Something that was completely independent of the banks.”

You can also pay with the digital assets. But there are very few stores that offer this. If that should change in the next few years – and here the experts argue whether that is likely or not – a completely new means of payment could be created. “They wanted to have something new, something of their own. Something that is completely independent of the banks,” says analyst Hettler. No central bank can intervene to regulate if something goes wrong or if it wants to influence the financial markets. The real hype takes place in the speculative area, in other words: People buy Bitcoins because they hope that the value will increase and that they will be able to make a profit as a result.

In an analysis, even the Deutsche Bank showed that Bitcoin is now too big to ignore. That is why more and more banks are jumping on the bandwagon. It only came out three weeks ago: The savings banks are currently examining whether they want to introduce a kind of digital wallet for crypto currencies in 2022. If the plans become more, customers could trade Bitcoin, Ethereum and Co. directly via their current account. The digital assets would thus finally arrive in the middle of society. Volksbank-Raiffeisenbank Bayern Mitte is also working on such an offer. And the largest payment service provider in the world, the credit card provider Mastercard, wants to enable payments in Bitcoin in the next year.

The Ulm crypto get-together is no longer alone with its passion for Bitcoin. “We were there before the hype”, some of them say several times that evening, that is important to them. Perhaps, so their hope, the financial world will become a little bit more modern with Bitcoin, Ethereum and Co.

The fear of missing out is playing a major role in the boom

Where does this hype come from? Why is the financial world suddenly interested in cryptocurrencies? Call Stefanie Kühn, financial expert from Munich. “Cryptocurrencies are now getting more and more out of the dubious corner,” she says. A few years ago, the headlines in Bitcoin and Co. were rather negative: Money laundering is carried out with digital coins, and many criminals use them to send themselves money. And the production is harmful to the environment, because a lot of electricity is needed to create the coins digitally. All of this criticism is still there.

The critical voices are, however, more and more obscured by one convincing argument: success. There are many stories about people who got rich by investing in cryptocurrencies. Very rich. This also attracts Kühn’s customers: Many ask them if they could “play along”. “It’s great, then I can become a millionaire,” they hope. The banks are also noticing this interest – and they want to satisfy their customers. In Kühn’s view, what banks, investors and asset managers all have in common is the fear of missing out.

The past few years have shown that it works with easy money, investors can achieve very high returns. But the rates of the crypto currencies fluctuate greatly. For Bitcoin, for example, the price was a good 6,000 euros at the beginning of 2020, at just under 24,000 at the end of 2020 and then over 58,000 in November 2021, only to drop to just under 43,000 shortly afterwards. “That is why it is also very risky and still a long way from being a serious investment,” says Kühn. She advises her customers not to buy Bitcoin and Co. It only provides information about the digital assets. The DZ-Bank also warns of the risks: “All of the savings can easily disappear into the sinking, it can lead to a total loss,” says Hettler.

This is why many investors stay away from crypto currencies, as the Bitkom survey shows: 69 percent of those surveyed do not trust crypto currencies. At least 33 percent assume that they are suitable for long-term investments; 21 percent see them as a “safe alternative” to the established monetary system. Multiple answers were possible in the survey.

It’s not just the quick (and high-risk) cash that fuels the hype. “The subject has always preoccupied people, including people who are actually conservative. They are interested in the new,” says Kühn.

One of these people is Hendrik Leber, “Fund Manager of the Year 2017”, at least according to the “Finanz Verlag”. He walks with big steps through Frankfurt’s banking district, past concrete buildings and mulled wine stands, occasionally pointing to a shop and rattling down the most important stock market data on the company behind it. “When I walk through the city, I see the world as a stock market price,” he says. He philosophizes almost on the side about the crypto scene and the financial world – and about how these two worlds are growing closer and closer together. Where banks want to exude seriousness and security, both things that you would not think of crypto currencies in the first place.

The fund manager sees himself as “exotic” in the financial world

Leber first heard of cryptocurrencies ten years ago. At that time, Bill Miller, who was considered one of the best investors in the world at the time, was at an award ceremony in Frankfurt. Miller told him that the two cryptocurrencies Ethereum and Bitcoin are “a big deal”. “Then I started looking into it,” says Leber. But it still took some time before he invested. Because he never really understood it all, it was too technical for him. In 2016, Leber took the first step and invested in cryptocurrencies for a fund. In doing so, he achieved “insane performance” for his customers, as he says. Recently someone thanked him for it and even gave him a more expensive bottle of wine. “I would never touch Bitcoin myself, but if you do that, that’s okay,” the man told Leber.

Investment: Fund manager Hendrik Leber in front of the Frankfurt Stock Exchange: "The financial sector thrives on making everything difficult.  With the blockchain, that would be eliminated.  The system would self-destruct", said is.

Fund manager Hendrik Leber in front of the Frankfurt Stock Exchange: “The financial sector lives from making everything difficult. With the blockchain, that would be eliminated. The system would destroy itself,” he says.

(Photo: Paulina Würminghausen)

Hendrik Leber is “exotic” in the more security-conscious financial world, he says himself. “I think many people tend to wait and see. Some also say that this is the devil’s stuff.” He is also not a fanatic himself and thinks it is unlikely that you will ever pay with Bitcoin at the supermarket checkout. But he does believe that blockchain technology will establish itself more and more in the financial world. On the other hand: The technology has been around since 2008 – why hasn’t it been established a long time ago? Liver doesn’t have to think long. “The financial sector lives from making everything difficult. With the blockchain, that would disappear. The system would destroy itself.”

He is convinced: With the cryptocurrencies, which are actually independent of the financial system and do not adhere to any rules, something is getting out of control for the central banks. A parallel world opens up on which they no longer have any influence. “I am surprised that the Bundesbank is not in complete panic,” he says.

As a means of payment, cryptocurrencies play “a really subordinate role”

In fact, the Bundesbank doesn’t seem panicky. Rather relaxed, although that could also be the general style of Bundesbank board member Burkhard Balz. As a means of payment, the cryptocurrencies would play “a really subordinate role,” says Balz. Only a few hundred thousand transactions can be made a day with Bitcoin. This is due to the brain of the crypto currencies, to the blockchain – it simply does not allow any more transfers yet. For comparison: in Germany alone there are around 71 million cashless payments in euros every day.

However, courtship does not completely downplay cryptocurrencies. In the beginning they were only a niche topic. “Today they take up a lot more space, there is a lot of dynamism in there,” he says. With more than 13,000 crypto currencies and a total market value of around two trillion euros, one can no longer speak of a niche topic. Some of these cryptocurrencies and the technology behind them would become increasingly important. That is why the Bundesbank would like to launch the digital euro as an alternative. In contrast to Bitcoin and Co., it is actually a real currency. “It could be an answer of the euro system to the crypto currencies,” says the board of directors of the Bundesbank.

It will take at least five years before the digital euro can be introduced. The Bundesbank must involve the banks, says Balz; it is important that they continue to play a significant role. Maybe in five years it will also be too late for a digital euro. Perhaps the cryptocurrencies will then have become even more entrenched in the banks and shops. The people at the Ulm Crypto Stammtisch would welcome that. “Bitcoin will change the world on various levels,” says a young woman quietly when, for a brief moment, nobody else speaks. Some at the table nod.

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