Bitcoin, a collapse very similar to that of subprime mortgages in 2000
The current bitcoin crash and the subprime mortgage crisis of 2000 they have unpleasant similarities especially to investors. Certainly cryptocurrencies do not threaten the financial system, as subprime mortgages did. The numbers are not big enough but the repercussions for investors are equally heavy. Heavy to such an extent that countries like China have banned trading and even advertising of cryptocurrencies. Russia is also following the same path. What happened? Last fall, the market value of the more than 200 digital currencies had reached the three trillion dollars. But since that peak, prices have plummeted, burning up some $ 1.3 trillion in market capitalization in a flash. Last week bitcoin had reduced its value by 50%.
Bitcoin, what are the effects on the economic market?
What could be its effects on the economy and above all who are the unfortunate and in some cases unsuspecting investors who are seeing their invested capital evaporate at the speed of light? If the stock market is not the economy, it can certainly be said that cryptocurrencies are not the economy either, even if they represent a very important economic asset that until now seems to have benefited many. But now we are seeing the dark side of the coin. But what does it really mean to operate with cryptocurrencies? There are many ways to trade with bitcoin and with its lesser-known competitors such as Etereum, they are payments digital, from Apple Pay and Google Pay to Venmo.
Bitcoin, the differences between cryptocurrency and traditional currency
But the differences exist. Conventional payment systems have the bank as their guarantor of the buyer who can verify the actual ownership of the value moved. Unlike cryptocurrencies they use a complex analog mechanism which skips the need to have a third party acting as guarantor. And this causes many non-observers to say that digital currency is nothing more than an expensive and complicated way of doing things that can be done more easily in a traditional way. And this explains why, after thirteen years of bitcoin’s life, there are still no negotiations with a legal and codified procedure. And the example of El Salvador, which has adopted bitcoin as legal tender, reinforces the thesis of the skeptics: the residents of the country who used the new currency had huge transaction fees.
Bitcoin, investments driven by famous testimonials
Even if no one really knows what cryptocurrency is for, investments have continued unabated, driven by the example of characters like Elon Musk who has invested something like 1200 million dollars. But now the collapse is evident and heavy. Of course, 1.3 trillion dollars of losses represent only about 6% of the GDP of the United States, little thing if you compare it to the real estate collapse due to unpaid mortgages by so many Americans and which have brought the American banking system to its knees and beyond. But who are the big and small cryptocurrency investors? According to a survey by the social research organization NORC, 44% of digital currency investors are not white (as is the case with the stock market) and 55% do not have a college degree. This means that the mirage of big gains has made its way especially among the so-called minorities and the working class. All this could represent a big risk for many families who are trying their luck in this investment. It is quite known by now that cryptocurrencies, with their enormous price fluctuations, apparently unrelated to basic economic parameters, are even more risky than normal investments.
Bitcoin, too high a risk investment
So why despite the risks do many continue to invest in digital currency? Apart from tax evasion and money laundering, hopefully, many people invest because they dream of earning easy money as someone on social media has led them to believe. Perhaps the growing valuation (albeit not the use) of bitcoin and its rivals represents nothing more than a bubble, ready to burst at all times. And the fault of this, if it happens, will be of all those regulatory authorities that, until now, have not blocked the dreams, perhaps impossible, of many unprepared people. This is why the collapse of the digital currency can be very similar to the great collapse of subprime mortgages. It was not the large, well-prepared investors that paid for it, but the millions of unprepared small investors guilty only of having dreamed of easy wealth and who could now pay a heavy price for it.
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