Cryptocurrencies are becoming more and more popular not only among ardent crypto enthusiasts but also among large investors. Institutional investors have held Bitcoin for a long time, and this asset has taken a place in their portfolio next to gold, stocks, bonds, etc. Investors are not afraid even of the high volatility of cryptocurrencies and the great risks associated with the industry. Even now, when the market is going through hard times, daring investors are in no hurry to get rid of cryptocurrencies, but, on the contrary, are replenishing their stocks hastily. Alex Reinhardt, a serial entrepreneur, crypto tech expert and venture capital investor, shared his opinion in an interview on why big players choose cryptocurrencies over more reliable assets.
- Is it true that with the advent and spread of cryptocurrencies, digital assets have a decent share in the portfolios of large investors? Why do you personally think cryptocurrencies have won the trust of wealthy people?
- First, I should note that there are about 55 million real active users in the cryptocurrency world. That’s not a lot, it is literally a drop in the ocean, so we cannot talk about the popularity of cryptocurrencies. And I would not say that the place of cryptocurrencies in investment portfolios is very stable, because, after all, investors and crypto investors are basically two different castes. Investors are not sure about the future of cryptocurrencies and therefore are afraid to deal with it. And they have reasons for this. For example, if a bank considers that your business activity is somewhat connected with cryptocurrencies, this will lead to the closure of accounts in 99% of cases. If you receive fiat money for cryptocurrency, even from a licensed exchange, you can lose your account. If the bank just finds out that you are involved in crypto business or invest in cryptocurrencies, you can lose your account. Even if you have been the most loyal client of this bank for 20 years, this bank will most likely punish you for any relation with cryptocurrency. And what does it mean for an investor to lose access to their bank accounts? This is a nightmare, and yes, this is one of the main reasons investors stay away from cryptocurrencies.
Another reason is taxation. Now simply Draconian tax laws are being introduced, extremely unfavorable for investors. Look at what is happening in Europe: for any “sneeze” you immediately get a crazy tax. The volatility of cryptocurrencies can easily lead to a tax debt hole: while you just hold coins and their rate jumps, fabulous money gets accrued as your debt to the tax authorities, although you do not have this money. Therefore, ordinary investors in most cases do not consider cryptocurrencies at all. They follow the usual paths.
Crypto investors are a separate caste. You need to take root in it, and you need to make friends with the people. They have long-term acquaintances and a background of amazing stories and lost funds. And, of course, it is also a special investment activity. Investors usually reduce their tax burden by making investments. And an investment in cryptocurrencies is not considered an investment in assets, so there are no tax deductions. Therefore, investors, especially large ones, often invest out of business rather than out of their net income. The thing is that even if you don’t get a profit, you can again get high taxes.
And I can’t say that cryptocurrencies have gained trust. Look at the crypto market now: there has been another correction, by 5–6 times, and millions, tens of millions of people are simply losing everything. The market is crying tears of blood. Each red candle on the chart means millions of lost investor dollars. Moreover, this is the money of real investors, with a strong strategy, because the crypto market is a war of strategies. And only a limited number of investors have real working strategies. Usually people have no idea if the rate will go up or down, and how stable it is. Any fake news leads to a state of panic. And you really need to be a kind of titan in order to withstand such pressure of negativity, fakes and fear. Therefore, we can’t talk about the trust of wealthy people in cryptocurrencies—it does not exist. It exists to some extent for Bitcoin. You need to understand that there is a huge difference between Bitcoin and the other cryptocurrencies. Bitcoin is a separate coin that occupies a separate place in this market, and people invest in it, but for other cryptocurrencies, everything is different.
So, trust in cryptocurrencies has not been won yet, although it is growing little by little. Of course, the community has grown 10 times, but the community needs to be educated. They are very untrained. The technology is very complex and risky, and it's really a high risk. There are lots of scammers, hackers and so on. The keys may be stolen, and everything will be lost. So this is such an area where you need to monitor the safety of your investments yourself very seriously, trust no one, check a thousand times and really monitor everything on your own.
- How do fiat, gold or stocks lose to cryptocurrencies? Are traditional investment assets obsolete?
- Fiat and gold are in no way inferior to cryptocurrencies. It's just that cryptocurrencies have a different strategy. This is a different business, different tools and a different risk. Profitability in cryptocurrencies is higher, but there are much more risks—in fact, that is why there is such a high profitability. Just like stocks are more profitable than real estate investments because the risk is much higher. And cryptocurrencies have maximum risk and, therefore, maximum profitability. There are very few risky instruments like cryptocurrencies in the market. Therefore, we can’t say that fiat is worse than cryptocurrencies. We live in a fiat world, and cryptocurrency does not exist on its own, for it still needs to be converted to fiat. Therefore, fiat is still more important than crypto. Cryptocurrency is, one might say, a vessel, a form in which this fiat is kept for increasing it, saving it or doing something else with it.
Shares may depreciate. Gold has its own peculiarities. In its pure form, in bullion, it always belongs to the state. And, for example, in the event of a war, it can simply be taken away. Meanwhile, it is very difficult to take away cryptocurrency. But I would not say that traditional assets are obsolete. If you look at the capitalization, the number of transactions and the attitude of people, traditional assets are still precious. Yes, you can get an enormous interest in cryptocurrencies. But haven’t you noticed how little people believe in high interest rates? They would rather take 7% in real estate than 700% in cryptocurrencies because it's too much. It sounds unbelievable, and there is no trust. So it's too early to talk about the obsolescence of traditional assets. It's just a different investment strategy, less risky, more conservative. And cryptocurrencies are more hype, more geared towards the young and daring, where you can put everything on one card and win a million, as they say.
- Every investor knows what diversification is. Can we say that wealthy people buy cryptocurrency mostly not because they consider it a reliable asset and believe in its growth, but simply for the sake of diversity, so to speak, “to have it”?
- Diversification in traditional business, yes, there is, and that's it. Diversification in the crypto world is fraught with consequences and is very dangerous. I stick to the idea that if you are a real crypto investor who is just playing with the rate, you should not be distracted from Bitcoin.
If we are talking about some new ecosystem around a coin, which is developing as a business, this is another matter since this is already participation in the crypto economy. But if a person invests only for the sake of playing on a fall or rise in the rate, diversification is not useful for him, it will lead to even greater risks and difficulties. Therefore, I am sure that investors, before investing in crypto, understand what it is. Gone are the days of Bitcoin millionaires who become such by chance. Cryptocurrency trading training is already highly developed. Many models have already been described. An entire generation has grown up with Bitcoin in 12 years. Therefore, I believe now it is already a conscious investment.
- Many analysts and experts are in favor of Bitcoin as an investment asset since such investments will help insure your funds against inflation in the long term. Are these judgments fair, especially now, when the exchange rate is far from its previous highs?
- Buying bitcoin at the level of 69 thousand spending 100 dollars is not a business, you can’t make millions on this. Therefore, you need to be fully aware that the time of this crazy hype is gone and will not return, and having invested a thousand dollars, you no longer can become a millionaire. Therefore, the most important thing when entering cryptocurrency is to understand that you become a different investor, you have different risks, you may have to wait years to at least cover your investment. But waiting is always justified, and if you have patience, you can increase your investment several times over.
As for insuring your funds against inflation, I can honestly say that Bitcoin is not at all the tool that is needed for this. Let’s talk serious. The inflation is a couple percent. If you want to protect yourself from inflation, invest in commercial real estate, office buildings and the like. Bitcoin is purely a speculative instrument. It is designed to increase the initial capital. Bitcoin has too much volatility, so it is not suitable at all to protect or safeguard anything. If you really want to hedge with cryptocurrency, take stablecoins, USDT. They do not move up or down. But Bitcoin is an investment lever, it is a crane for raising big profits. Take big risks, invest a lot, wait a long time, earn a lot. If you are not ready for this, it is unlikely that crypto investments will please you.
The fact that the rate is far from the previous highs is not particularly important for investments. Bitcoin cost $200, $700, $2000, and still people managed to lose all their money on it. The rate does not matter in cryptocurrency, only the strategy is important. You need to have a bulletproof strategy in cryptocurrency, that's all. The rate is of no concern. You can make money on a high exchange rate and you can lose everything on a low one. Professionals earn on a low rate, and on a high one, on a growing one, and on a falling one. Professionals earn on any movement of the coin rate. The most important thing is a movement of over 10–20% in some short-term period, and that’s it, you can earn money on it. All you need is a strategy designed for 3–5 years and money. To begin to implement a strong meaningful strategy in crypto investments, today you need a capital of $300,000 or more. Yes, now cryptocurrencies are the domain of the really rich. These are investments starting from $300,000–$500,000. Better from 1 million, and preferably for 3–5 iterations. This is according to a special strategy that a person makes for himself, so that he has the opportunity not to do all in, but to buy again, to repurchase, to support their investment. Additional money is needed for all these phases.
- According to statistics, young people under 40 invest the most in digital assets. The older generation does not appear so fascinated by Bitcoin, and does not see great prospects in cryptocurrencies. Or is it the lack of awareness and crypto literacy of these segments of the population?
- Perhaps the number of young investors is high. But let's be honest. Young people under 40, as a rule, simply do not have a lot of money. Therefore, in total, their investments will be much smaller than the investments of people over 40 who have already managed to earn something. Of course, the older generation is much more difficult to convince of new technologies since for them it takes longer to understand them. But if they sit down, figure it out, then they have a higher quota. These are people who can be patient and wait. They can set aside for 3–5 years and not touch this asset. After all, they are used to taking pills to stay calm (laughs). Therefore, I think that the older generation of Bitcoin owners has more prospects than the younger people. Young people are too inconstant, fickle, poor. And, of course, they are too educated. They try to “sit on several chairs” at once; they are everywhere at once: they are engaged in trading, and they hold, and they go into diversification into 10 coins at once, they are fond of some new features, they go to some kind of faucets, to some special trading amplifiers, and in the end they lose all the capital. So I believe more in the success of adult investors.
- What role does the state play in popularizing cryptocurrencies and increasing investor confidence in them? Is it possible to say that people began to invest more in cryptocurrencies because the central banks of different countries have been actively studying this issue and have even started issuing CBDCs?
- States, government agencies play a key role in the attitude to cryptocurrencies. But they do not increase its credibility or popularize it. On the contrary, they limit, curtail and prohibit it in every possible way. But the state plays a decisive role in treating cryptocurrencies because it pushes people there. The more the State tries to control, prohibit and tax absolutely everything, the more people are pushed into the cryptocurrency niche. Unexpectedly, the money in your bank account is not your money, it's bank's money. And before you send something to someone, youl have to answer 1000 questions of the bank. The bank can still say “I won’t send” and refuse, return, block. It can just close your account. And you won't do anything about it.
And for people with big money, the most important resource is time. They do not want to deal with this red tape, this bureaucracy, they want to work quickly and accurately. They just want to send money, pay this bill, set aside this amount, and save that amount. They want to get the business up and running quickly. But it doesn't work that way with banks. If you want to send money from your account to your own account in order to buy real estate, you need to show right away that this is really your account, show contracts, show the origin of the money, prove the seller’s rights to own that real estate. They check everything, as though it has something to do with them. And they don't do it because they care about people. They do this to delay transactions in order to keep the money. Any hour, any day of the stay of capital in the bank brings interest. Therefore, any brake equals the bank's income. The longer they delay, the more they earn. And as a result, the longer they do not give this money, the more profitable it is for the bank. Therefore, they are increasingly complicating the process with all sorts of KYC, IML, limits, and so on. For trying to withdraw 1000 euros in cash, almost the police are called. People don't like it, they want to control their money themselves because they honestly earned it, paid taxes, and suddenly, for some reason, they can't use it freely. And then they choose cryptocurrency because they press one button, send a million, confirmation immediately comes—the transaction is successful.
People are ready to pay taxes. They are not going to deceive anyone. But they do not want to be limited by these restrictions. And as a result, they go to the cryptocurrency world for the sake of simplicity, speed and peace of mind.
I do not believe that banks have begun to study this issue and will open up new opportunities for cryptocurrencies. They have been studying this issue for 12 years. You need to understand that banks make money from users' money. For them, there is no point in cryptocurrency at all. The banks are doing well. Cryptocurrency is a way for people to make money. Banks do not want people to earn money, but want to earn money themselves. And that's why they don't need this business at all. That's why there is no regulation, and that's why there are no crypto accounts in banks, and that's why they struggle with cryptocurrency in every possible way. Therefore, unfortunately, banks do not help at all, and, in particular, they slow down this process very, very much. If not for their opposition, the cryptocurrency would already be 10 times more popular and 10 times more often it would already be used by the business world.
- What about the influence of hype and the popularization of cryptocurrencies by famous personalities on the growth in the number of crypto investors? For example, when a person hears every day that celebrities or heads of large global companies are investing in crypto, they want to become part of this club.
- Of course, the very word cryptocurrency is already a hype. Indeed, any influence of hype on cryptocurrency is very fruitful. Of course, if celebrities start talking about it, they influence seriously. Elon Musk bought Bitcoin—Bitcoin grew by 30-40% at once. The phenomenon definitely exists. But in some countries, such famous people run great risks with this. For example, in China or even in Russia, one can get it very seriously for the popularization of cryptocurrencies, including both fines and prison terms. Therefore, hype with celebrities is, of course, cool, but so far this is an exception, not a rule. Or it is just fake news to generate interest in cryptocurrency, to make people come in, to draw attention to some project. But it really affects the crypto market positively.
- Is it true that “crypto is for the rich”? Is it true that investing in digital assets is profitable only for those who play big, and getting rich from scratch is hardly possible?
- Unfortunately, yes. The days of the gold rush are over. As it was in America: you came, stuck a shovel—this was your land. You dug up gold—it was your gold, you were a millionaire. There was such time also in Bitcoin, when you could put a simple computer in any garage, mine bitcoins for yourself and earn millions. Or buy 10,000 bitcoins for $1,000, forget about them, and then find them and become a millionaire. Now, indeed, cryptocurrency is for the rich. You can not play with it for the last money. You must have a solid capital that you are willing and able to lose. But money doesn't solve everything. Now the crypto market is already the territory of experienced professional investors. Beginners in the crypto industry have practically nothing to do but give their last money to traders on exchanges and lose. The time for learning and gaining experience in the crypto market is about 2–5 years, depending on how you learn, of course. On average, this is 3 years, during which 90% of newcomers squander everything and go broke. To really make money on cryptocurrency, you need to have experience, skills, tools and a lot of luck. So yes, cryptocurrency is for the rich—or unrealistically lucky.
- Large investors are cautious people. They would not have been able to make such a fortune if they knew nothing about the risks. Cryptocurrencies are a perilous and volatile asset. In order to invest in cryptocurrency competently, you need to be theoretically savvy and emotionally stable. Why do people choose this difficult and thorny path if there are many options for the so-called "passive" investment? You just buy gold and live in peace, knowing that nothing will happen to your funds and they will grow gradually. What justifies the risks of investing in crypto?
- Rich people don't get rich by accident. Almost every wealthy person will tell you that one day he had a chance, and he had to work very hard to use this chance, and only then he got rich. In this world, it rarely happens in a different way, unless you are lucky to be born the heir to some great fortune. Therefore, rich people, large investors differ from others in that they have risk experience and the opportunity to invite professionals, including risk managers with good strategies. Millionaires are well aware that cryptocurrencies are a very volatile and, therefore, risky instrument. And it must be treated very carefully. But the profit is higher.
No theory and emotional stability will help. It is a strategy that is needed. If you don't have it, no matter how theoretically savvy and emotionally stable you are, you will make mistakes, get sucked in and eventually lose.
As for the options for so-called passive investment without risks, I don’t know such options. Previously, it was possible to put some capital in the bank, receive 10% per year—that's passive income. And what we call passive income today is just risk management anyway. Take, for example, gold. As I said, you can buy gold and live in peace—yes. But the price for it is not growing fast. And if you get hungry, you won’t be able to saw off a piece of gold and exchange it for bread. You invested money in gold so that you can’t use it in order to save it. True, in the event of martial law, as I have already said, the gold will be confiscated. But until this happens, you just keep the gold. Let me remind you once again that cryptocurrencies are not suitable for storing funds. This is a purely investment tool to make profits, to take big risks and win big. The risks of investing in cryptocurrency are justified by high profits. This is done by those who are ready to take a big risk, even risk everything, if only the profit is cosmic. If you can risk a million and earn 100 million, you are taking a risk. Even if you can earn 10 million, you will also take risks. This is almost a tenfold increase. And it is the profit that justifies any risk, especially in cryptocurrencies.
- There is an opinion that rich people invest in cryptocurrency because they no longer trust state institutions. They fear tightening financial policies, freezing accounts and other problems with regulators. In the case of cryptocurrency, since it has a decentralized nature, you can not be afraid that the state will take away everything acquired by hard work. Is this issue really that serious?
- Yes, that's how it is. Rich people have already paid so much tax money in their lives that it's just a nightmare. Their houses, yachts, cars, jewelry have been confiscated. The authorities have blocked their accounts, conducted searches, seized their computers, canceled transactions, canceled their money transfers, asked why, to whom, where the money came from, and denied service. In the case of cryptocurrency, there is nothing to be afraid of, because the state simply does not know what you have. It is clear that if they come to a person to confiscate property, they will search, and the person is obliged to tell them what he has. If you don’t disclose, you are breaking the law, and even a criminal case may follow, so cryptocurrency does not completely protect against such situations. This is not a way to hide money. The person can be accused of money laundering, for which they punish very seriously. Therefore, as a rule, rich people will not exactly hide money in cryptocurrency. But they embrace cryptocurrency in order to manage their funds independently and calmly. As I said before, your money in the bank is the money of the bank, and the money in your crypto wallet is your money. Yes, no one will protect you, but no one will attack you or block anything.
If the state wants to take something away, it will take it away because in the worst case, a person can be imprisoned and kept until he gives up everything himself. Therefore, I repeat: cryptocurrency is not to hide money, but to invest money with great risk and maximum profit. And when you make a profit, of course, you have to pay tax on it. Otherwise, you will already be risking your freedom, rights and well-being. Therefore, it is very important to build your infrastructure and the legal field around your investment competently: consult your lawyers, use the right tools and find a way to pay taxes. Otherwise your investor career will be bright, but short.
However, despite the fact that the normal regulation of cryptocurrencies is badly lacking, it is worth trading them, and now more than ever. Interest in cryptocurrency is growing and will continue to grow. We should expect records. You know, they say that there are no simple times, but now they are not easy in a special way. Pandemic and crises, wars and defaults, bankruptcies of states, tax increases, price increases, many restrictions that almost no one could have foreseen. Under these circumstances, it is especially difficult to do business. There are more and more entrepreneurs who are ready to work with cryptocurrencies, taking risks, but skipping a lot of bureaucratic restrictions and regulations.
Here is a simple example. A person decides to open a company, starts a business, and a bank account is opened for him for 6 months. He somehow has to work all this time, pay for something, start up, receive money for his services. But they don’t open an account for him, and that’s it. And then he decides to accept cryptocurrency. And he understands that he does not need an account at all.
Or take, for example, a lawyer, a specialist in international law. Of course, he is interested in working with clients from different countries, and, certainly, he would like to receive money for this. But now any international transactions are very complicated. Clients say: let's pay with cryptocurrency. And the person, of course, agrees because he needs to sell the service, he needs to receive money, and not play a quest with the bank.
Entrepreneurs who just want to do business are increasingly switching to cryptocurrency in order to simply not get involved with government, banking structures, save time and money, increase speed and profit, increase their reach and offer customers more comfort. You can work with cryptocurrency internationally without stumbling over the lack of any payment instruments or, for example, political sanctions.
