Basic and risk information for the purchase of vouchers and their redemption
A voucher purchased through the platform operated by CGift AG ("CGift") entitles the holder to purchase crypto securities through Bankhaus von der Heydt GmbH & Co. KG ("BvdH"). Customers may also have such cryptocurrencies acquired through voucher redemption resold by BvdH. BvdH will purchase or sell the cryptocurrencies for the customer at trading centres for cryptocurrencies selected by BvdH in its own name but for the account of the customer (financial commission business).
Cryptocurrencies are a relatively new asset class that is only suitable for very well-informed customers. If a customer decides to acquire cryptocurrencies, he should therefore inform himself comprehensively; in particular, an examination of the functioning of cryptocurrencies and the risks arising from the acquisition and sale of cryptocurrencies is required.
Neither CGift nor BvdH examine whether transactions with cryptocurrencies are appropriate for a client, in particular with regard to the client's knowledge and experience.
Since the purchase of cryptocurrencies is also associated with the risk of a total loss, a client should only purchase cryptocurrencies if he is financially able to also cope with a total loss of the capital invested. As a matter of principle, purchases should not be financed through loans.
Neither BvdH nor CGift make personal recommendations to customers regarding the purchase or sale of cryptocurrencies; in particular, they do not provide investment advice. It is therefore advisable, where applicable, to seek the advice of a suitable advisor, such as investment, financial and tax advisors, before entering into any transaction.
Investing in cryptocurrencies is associated with various risks. These can occur individually or also cumulatively, whereby several occurring risks can also reinforce each other. The risks presented here are not exhaustive, but represent the most significant risks from BvdH's point of view. The order of the risks presented does not indicate the probability of occurrence of the risk, its impact on the customer or its significance.
A. Basic information
Cryptocurrencies can also be referred to as "virtual currencies", "digital currencies" or "alternative currencies". The European Banking Authority (EBA) has defined cryptocurrencies in an opinion (EBA/Op/ 2014/08, paragraphs 18 et seq.) as a digital representation of value that is not created by a central bank or public authority and does not have to have a link to legal tender. and does not have to be linked to legal tender. The definition of "crypto assets" within the meaning of Section 1 (11) sentence 4 KWG that applies in Germany is also based on this. According to this, crypto assets are defined as "digital representations of a value that has not been issued or guaranteed by any central bank or public authority and does not have the legal status of currency or money, but is accepted by natural or legal persons on the basis of an agreement or actual practice as a means of exchange or payment or serves investment purposes and which can be transmitted, stored and traded electronically".
Cryptocurrencies are fundamentally based on the idea of a non-state substitute money in limited quantities. Unlike money, which central banks can theoretically issue without limit, and book money, which commercial banks create, the creation of new units of value in the cryptocurrencies Bitcoin (BTC), Litecoin (LTC) and Ether (ETH) basically takes place via a predetermined mathematical process within a computer network. This process is called "mining".
Cryptocurrencies are assigned to identifiable locations ("addresses" or "public keys") in the network. An address is derived from a randomly generated string of characters, the private key. The respective owner of an address manages it with the associated key pair to authenticate transfers. All users can transfer their cryptocurrencies among themselves within the network. They must regularly communicate the respective destination addresses to each other outside the network. The amount of value units assigned to an address and all previous transfers are publicly visible in the blockchain. In the network, however, it is not recognisable which person is the owner of the value units recorded there. In addition to the transfer of value units within the network, it is also possible to physically transfer keys between persons, for example by passing them on data carriers.
B. Risk information
1. Market price risk
The price of cryptocurrencies is subject to continuous fluctuations. These price fluctuations can extend over a longer period of time; however, significant price movements can also occur within a short period of time. Price fluctuations are based on an interplay of supply and demand on the market. The psychology of market participants plays a considerable role in this:
- The development of prices can be completely irrational;
- News from politics and the economy, moods and rumours all play a role in price formation;
- Facts can be interpreted in different ways. It can be very difficult to separate rational and irrational influencing factors and to determine the direct effect of these factors on price movements.
In particular, significant price fluctuations can also be the result of strong selling interest on the part of one or more market players. In general, there is a risk that the price level changes to the disadvantage of the customer. As a result, the customer may incur losses (up to total loss) or miss out on profits.
BvdH buys or sells cryptocurrencies on cryptocurrency trading platforms selected by BvdH. BvdH does not promise the customer a certain price at which cryptocurrencies will be bought or sold. The price and settlement risk from the transactions concerning the purchase or sale of cryptocurrencies is borne by the customer. Therefore, there is the risk that BvdH buys or sells cryptocurrencies at a price that does not meet the customer's expectations or that delays or price changes occur in the execution of the customer's order to the customer's disadvantage. This may result in losses for the customer or in the customer missing out on profits.
2. Risk of temporary unavailability
In principle, CGift's platform and BvdH's service are available 24 hours a day for purchases and sales of cryptocurrencies. However, neither CGift nor BvdH guarantee an uninterrupted availability of their services. In particular, it cannot be excluded that the technical systems, including the technical systems of a trading venue operator on which BvdH executes the client orders, or the technical systems of a third party, which are decisive for the provision of the services, temporarily do not function properly.There is a risk that the customer may not be able to make purchases and sales due to temporary unavailability.This may result in losses (up to and including total loss) or loss of profits.
3. Liquidity risk
From a customer's perspective, the liquidity of a cryptocurrency can be understood as the ability to buy and sell this cryptocurrency at any time at a price in line with the market. Liquid cryptocurrencies are typically characterised by, among other things, a narrow spread (distance between the best bid and ask price for a given trading volume). For illiquid cryptocurrencies, the spread is regularly wider. There is a risk that the liquidity of the cryptocurrencies on the trading venues selected by BvdH will deteriorate and the spread will widen as a result. As a result, the investor may incur losses or miss out on profits.
4. Risk of suspension of trading
There is a risk that individual cryptocurrencies will no longer be traded on trading venues for cryptocurrencies in the future or will be traded to a lesser extent, which may make it more difficult for BvdH to execute corresponding customer orders to buy or sell. The settlement risk from transactions with BvdH is borne by the customer. There is the risk that cryptocurrencies cannot be acquired for the customer or that it is no longer possible to sell the customer's cryptocurrencies. This results in losses for the investor up to a total loss or profits may not be made.
5. Higher risks with same-day transactions
The execution of same-day transactions refers to a behaviour in which trading objects are bought and sold at a high frequency, regularly several times a day. As a rule, this is done with the intention of making profits from even the smallest or smallest price fluctuations. Conducting same-day transactions also increases the risk of realising losses when buying and selling due to the bid-ask spread. In addition, it should be noted that neither CGift nor BvdH itself is a trading platform and such same-day trades, although possible, do not correspond to the business model of voucher issuance.
6. No acceptance as a means of payment
Providers of goods and services or other market players are not legally obliged to accept cryptocurrencies as a means of payment. The possibility of using cryptocurrencies as a means of payment therefore depends on the acceptance of these market actors. There is a risk that cryptocurrencies will be accepted as a means of payment in the future to a lesser extent than before or not at all.
7. Value risk
Cryptocurrencies have no intrinsic value, for example in the form of a material value. The value of cryptocurrencies is basically fed by the interplay of supply and demand on the market and is therefore determined by the market price. There is a risk of a decline in the market price without this loss being limited by an intrinsic value.
8. Surrender risk
The functionality of the distributed ledger technology underlying a cryptocurrency depends, in the case of the cryptocurrencies Bitcoin (BTC), Litecoin (LTC) and Ether (ETH), to a large extent on the ability and willingness of the miners to make their computing power available for the creation of new blocks. These "technology operators" may cease their activities for various reasons, for example due to a lack of public interest in the respective cryptocurrency, a lack of sufficient funding or insufficient revenues. There is a risk that "technology operators" cease or reduce their activities and that the functioning of the respective distributed ledger technology is no longer guaranteed to a sufficient extent.
9. Risk of irreversibility of transfers
On the Platform, Customers have the option to terminate the crypto custody agreement with BvdH and instruct BvdH to transfer cryptocurrencies to their own wallet. For this purpose, the customer must provide BvdH with a corresponding address ("Public Key"). In particular, there is a risk that the customer makes a mistake when entering the address and that the cryptocurrencies are not transferred to the correct address. Since a transfer can no longer be reversed, this would lead to the loss of the transferred cryptocurrencies.
10. Regulatory risk
There is a risk that certain jurisdictions may apply or differently apply existing regulations or introduce new regulations for applications based on a distributed ledger technology, which may negatively impact the current set-up of the systems or result in significant changes to these systems. This may result in a decline in value and possibly a total loss for the investor who has acquired vouchers or cryptocurrencies.
11. Tax risks
Insofar as a customer achieves profits from the purchase and sale of cryptocurrencies, these are in principle to be taxed by him. There is a risk that the current regulations on the scope of tax liability may change to the detriment of the investor or be applied differently by (domestic or foreign) tax authorities.
12. Cyber security risk
BvdH keeps the cryptocurrencies of the customer in custody according to very high security standards and has implemented a corresponding security concept. However, this security concept does not guarantee 100% security. There is therefore a risk that the IT facilities used may be subject to cyber attacks or physical attacks. This can lead to a loss (up to total loss) of the cryptocurrencies held in custody for the customer.
13. No deposit insurance
The cryptocurrencies held in custody by BvdH for the customer do not constitute a deposit and are therefore not subject to any statutory or voluntary deposit insurance. No payments are made to the customers by third parties (e.g. a deposit protection fund).
14. Manipulation risk
Each distributed ledger technology underlying a cryptocurrency is based on a specific cryptographic procedure which aims to protect against manipulation. These procedures or the implementations of these procedures could prove to be insufficiently secure in the future. This also applies to future updates or upgrades of software, in particular the reference software. There is a risk that the functionality of the distributed ledger technology could be impaired or completely removed by cyber attacks, for example. This can lead to a loss of cryptocurrencies (up to and including total loss).
15. Risk of a majority attack
There is a risk of a so-called "51% attack". In this, attackers succeed in placing more than 50% of the miners and thus more than 50% of the so-called hashrate. He can thus gain control over the network. He could then, for example, prevent cryptocurrency transactions, reverse them or otherwise shape them in his favour. Such 51% attacks can also be carried out successfully with significantly less than 50% of the hashrate.
There is also the risk of a so-called Distributed Denial of Service (DDoS) attack. In such an attack, attackers overload a network or a blockchain with a high number of requests and/or transactions and thus make it (temporarily) unusable. If a critical number of transactions is exceeded for a longer period of time due to a DDoS attack, holders of the affected cryptocurrency would not be able to transfer it.
In the worst case, this could also lead to the total loss of the cryptocurrencies belonging to the customer.