Speculation, crypto, leverage and fraud

Nina, 27, sees an influencer say a tiny token will “go up 50 times this week”. The same day, a trading app offers her “30:1 leverage” to control €15,000 with €500. Both feel like shortcuts to quick money. Is this investing?

Investing and speculating are different things

Speculation means buying something mainly to profit from short-term price moves, not from the income it produces. An orchard owner eats the fruit for decades; a speculator bets on next Tuesday’s fruit price.

The evidence on frequent trading is poor. A study of 66,465 US households from 1991 to 1996 found that the most active traders earned 11.4% a year while the market earned 17.9%. The average household earned 16.4%. Trading costs and overconfidence did the damage.

Crypto-assets

A cryptocurrency is a digital token recorded on a shared ledger, a blockchain, that many computers keep and check together.

• Bitcoin was the first, launched in January 2009, and its supply is capped at 21 million coins. It pays no income, so its price depends only on demand. It has fallen by more than 80% from late 2017 to late 2018 and by more than 75% from late 2021 to late 2022. The exchange FTX collapsed in November 2022 and customers lost access to their money.
• A stablecoin is a token designed to hold a fixed value against a currency such as the euro or dollar. It can still fail to hold its value, or its issuer can fail.
• Thousands of other tokens exist, and many have disappeared.

The EU regulation called MiCA entered into force in June 2023 and applied fully from 30 December 2024. It requires crypto firms to be authorised and issuers to publish a white paper. It does not protect prices, and crypto holdings are not covered by deposit insurance or investor-compensation schemes. In the US, spot bitcoin exchange-traded products have been allowed since January 2024.

Leverage turns small moves into total losses

Leverage means using borrowed money to increase your exposure. It magnifies gains and losses alike. A CFD, or contract for difference, is a leveraged bet on a price change, without owning the asset.

EU regulators found that 74% to 89% of retail CFD accounts lose money, and they capped leverage for retail clients from 30:1 for major currency pairs down to 2:1 for cryptocurrencies. Leveraged ETFs reset daily, so in choppy markets they lose even faster: after ten days of +10%, −10% the index is at 95.1, but a 2× daily product is at about 81.5.

How scams work

• Ponzi scheme: “returns” paid from new investors’ money. Bernie Madoff’s scheme collapsed in December 2008, and he was sentenced to 150 years in June 2009. Many victims were sophisticated; the too-smooth returns fooled professionals.
• Pump-and-dump: promoters hype a small token or share, then sell into the rush of buyers.
• Red flags: guaranteed or very steady high returns, pressure to act now, secrecy, an unregistered firm, withdrawals delayed, payment in gift cards or crypto, and endorsements by celebrities (often fake).

Social media personalities who talk about money, sometimes called finfluencers, may be paid to promote what they show. When a firm advises you in the EU, it must check that a product suits your knowledge, finances and goals.