The six keys that those interested in buying cryptocurrencies should know: The investment is long-term and has risks

Cryptocurrencies are purchased through bank transfers, deposits or with the use of credit and debit cards.

The acquisition is allowed in Ecuador and banks no longer block accounts when they register this type of purchase that requires transfers abroad, as they used to do in the past, says Francisco Semblantes, co-founder of BuenBlock.io, company that develops and implements solutions software technology related blockchainwhich gives sustainability to digital currencies.

The main thing is that the purchase of cryptocurrencies is part of a long-term investment waiting for the digital currency to appreciate upwards, and thus multiply the value invested by selling it in exchange for dollars.

Financial specialists advise a minimum of two years, four years or more, time that the cryptocurrency must be stored until it is exchanged again for the official currency that was used.

The problem is that it is a developing financial ecosystem, so there is a lot of fear when investing.

“Here in the country it is associated with a scam, so there is a rejection. The fact that the manager of the Central Bank of Ecuador (Guillermo Avellán) has announced that a regulation is being prepared this year in this regard, will probably make people take an interest and begin to educate themselves, to know what it is really about”, indicates David Padilla, professor at SEK International University (Uisek).

Avellán told Bloomberg that the ECB is making the regulations on the use of cryptocurrencies in Ecuador that it will present until next March before the Monetary Board, an entity that would approve it in the second or third quarter of this year. “This regulation does not imply that cryptocurrencies are going to become legal tender, as happened in El Salvador, but they are a reality and we cannot be outside of that. It must be taken into account that cryptocurrencies are an investment asset, but given their high volatility, it is very difficult to consider them as legal tender”, he asserted.

One of the objectives is to prevent these investments from being used in money laundering, as has happened, the official stressed.

At the moment there is already a greater permissiveness. “As of today, the vast majority of local banks already allow (the purchase of cryptocurrencies). Until recently they blocked the accounts and it was time to talk, it was a bummer. Now they have realized that they cannot fight against a global trend because of what they receive the transfers from these origins“, says Semblantes.

There are six key points that must be taken into account to understand how this market works and finally invest in them, they agree.

1.- Use money that is part of a profit or savings that you are not going to require.

There is no regulatory body that supports cryptocurrencies, so the golden rule is that everything you are going to invest must also be willing to lose it, as in any investment, says Padilla.

“If you are starting out, understand that the value of cryptocurrencies is quite volatile. today an ethereumthe second most capitalized digital currency in the market after bitcoin, it may be worth almost five thousand dollars and in a couple of weeks it collapses and will be worth 50% of the value. So see when you invest and not be in such a hurry, since there is no return in the short term”, he indicates.

It is not that in a month you will receive a 10%, 15% or 20% return because that will not happen. These investments have long-term returns.

An example. Those who bought a bitcoin in 2015 when it was worth a thousand dollars, multiplied that value since today it is worth $36,000. But it happened in the long term, in six years.

In that time it went up and down in price.

A citizen sold his car to buy a bitcoin for twenty thousand dollars in December 2017, Semblantes says. Two years later, in January 2019, he freaked out at the price drop and sold that same bitcoin for $3,000 for what he lost.

“They are assets that have greater volatility than any other asset that has existed in history. Bitcoin is typically down 80% from its all-time high before rising again”, expresses Semblantes.

The all-time high for a bitcoin was $68,800 in November 2021.

2.- There are more than 15,000 cryptocurrencies, so you have to know which one to buy.

Cryptocurrencies are actually investment projects with buyers globally, somewhat similar to trading shares on stock exchanges. Hence, as they are not regulated, new ones appear that actually correspond to scams, raising money under the guise of a crypto project.

An alert to identify scams is when they offer a fixed monthly return. “Never in a cryptocurrency project can they offer with respect to its value a fixed monthly percentage because you depend on a market, there is supply and demand,” says Padilla.

Bitcoin, for example, emerged as a financial alternative to the global crisis of 2009 with the bankruptcy of banks. So, every cryptocurrency is based on a project.

The coinmarketcap.com website lists more than nine thousand digital currencies with their basic information, their price, the total capital invested, the project that supports it and if its value increased or rose in 24 hours, seven days.

They are ordered from the most capitalized in the market to the smallest, so bitcoin, ethereum and tether appear in the first three places.

Bitcoin accumulates a capitalization of around 700,000 million dollars, almost seven times the gross domestic product (GDP) of Ecuador.

Semblantes recommends analyzing the information and buy the ones that are in the first hundred places. “The rest are very dangerous since it is not a regulated market. As Francisco, I can issue the Panchocoin, create a project, a website and say that this digital currency will make world hunger disappear and make everyone who buys it a millionaire.”

After people start buying, adds the specialist, because the creator will take the money, cancel the website, that digital currency will have zero value and the money is lost.

3.- Invest little by little in several of them, such as the advice not to put all your eggs in one basket.

Starting with an investment of a thousand dollars, buy several of them, seeing why they were created, their goals and how they are going to meet them.

The profit is to buy when they are at low prices and sell them when they rise in value. There is a return on investment.

Typically, digital assets that are more capitalized are purchased. You have to look at the number of those digital currencies that are on the market.

“For example, the lower the number of this type of cryptocurrency, there will be an upward trend. Let’s talk about bitcoin that has 21 million, we know that it is a finite number, the maximum that there will be of that currency. So it is probably not enough, when all the bitcoins are in circulation there will be an emerging market that will make its value continue to rise”, Padilla says.

What is striking about this investment is that they are cryptocurrencies that are not affected by the inflationary processes of national currencies.

countenances recommends invest as much money as you can and won’t need in the long run, in a minimum period of four years. For this reason, it is not recommended to sell assets, such as houses or cars, to invest in cryptocurrencies, much less get into debt.

4.- They do not have support from the authorities. Cryptocurrencies are supported by a technology called blockchain.

How does the exchange of buying and selling cryptocurrencies on the internet work?

The answer is with the development of technology. One in particular called blockchain, which is an open, borderless, distributed, neutral and censorship-resistant database that stores and moves all kinds of data, including assets – money, stocks, music, certificates, photography, files and digital documents of all kinds – indicates the website buenblock.io.

“It is made up of a distributed ledger, whose entries or transactions are stored in a sequential structure of blocks ordered chronologically and related to each other through sophisticated cryptographic techniques.”

In the case of cryptocurrencies, it is the system for recording financial transactions. The software which is behind the digital account statements in which the balance is determined and through which it is operated to whom the digital currencies must be paid or sent.

This creates investment opportunities in countries with computers that must be on 24 hours a day and programmers behind them, who become jobs.

5.- Sending cryptocurrencies directly to any part of the world implies the evasion of national taxes.

In countries like India there is a tax that charges 30% of the income earned on investments in cryptocurrencies. This occurred with the regulation in that Asian country, which is the second most populous in the world.

“Governments are looking for these investments not to be a way out of paying taxes,” says Padilla.

In the case of Ecuador, money in digital currency can be sent to another person anywhere in the world at a significantly lower cost. “For example, the foreign exchange exit tax (ISD) would not be paid,” explains Padilla.

The two people have to have the digital account to exchange only the cryptocurrencies. When using credit or debit cards, it is taxed as consumption and there the ISD is charged.

There are sites that are tools for the exchange of cryptocurrencies. You also have to know which one to use. Specialists recommend the so-called exchange such as binance.com, coinbase.com, uphold.com.es and capitalika.com

The latter is of Ecuadorian origin. There are people who are dedicated to the exchange of cryptocurrencies charging commissions. “After several transactions, it becomes a trusted one. They charge around 3%”, says Semblantes.

Víctor Pazmiño maintains investments in cryptocurrencies since 2019. He is helped by a trusted personal friend. He says that he has made him money, but he has also lost.

“I made a transfer from my bank account. I bought $300, which today is $800 (in almost three years). What happens is that they sell the etherium and with that cryptocurrencies that are falling are bought; but, be careful, you also lose, because there are some that are ghosts”, he affirms.

6.- The investment can generate annual interest from 6%

An alternative is to earn interest within the digital financial system. Websites include sections with the word earn, such as on binance.com

There are different alternatives to earn interest with cryptocurrencies. “They can go from 6% a year depending on the type of digital currency. Each one offers an interest so that the people who buy it, instead of selling it again and the time the price falls, pay interest in exchange for leaving the account blocked for three, six months or a year. As it is blocked, it cannot be sold and price stability is generated,” says Semblantes.

Keep in mind that binance.com already charges ISD plus website commission for usage that ranges from 3% to 5%.

The face-to-face market has its advantages because taxes and commissions are not levied. In the world of cryptocurrencies, the so-called wallets (wallet in English) come to be what bank accounts are in the financial system. (I)