Everyone is talking about Bitcoin. With dizzying peaks, massive short-term gains matched by crushing lows and double-figure percentages wiped off the value in hours, the cryptocurrency roller-coaster is only for the strong-stomached.
But what is cryptocurrency? What is a Bitcoin? And is it a safe investment?
According to one of Yorkshire’s top IFAs, Stephen Baxter, Joint Managing Director at Robertson Baxter, investing in cryptocurrency can hardly be classed as an investment at all, but more a gamble.
Bitcoin is digital currency; every coin and transaction is tracked on a database called the Blockchain. The database is held by all bitcoin users and not held in just one place.
It has been the best performing currency globally every year since 2010 – apart from 2014 when it was the worst.
“There is no doubt that there are huge gains to be made from gambling your money on cryptocurrency – £300 invested in Bitcoin 6 years ago would now be worth £13.8 million – but the risks involved are huge,” said Stephen, whose firm offers financial planning for high net worth individuals, charities and trusts in the region.
At the time of writing, a Bitcoin is worth £2,869. The good news is that you do not have to buy a whole one. You can buy in as smaller fraction as you wish. The most user-friendly way is a mobile app called Coinbase. You transfer money into your Coinbase wallet and buy and sell Bitcoin for a small fee.
There are alternative cryptocurrencies; Ethereum and Litecoin are two examples. Ethereum recently won backing from Microsoft and JP Morgan and is up 900% this year.
“Buying cryptocurrency is a chancy way to grow your money,” added Stephen. “It’s highly volatile. The last time the US stock market fell by more than 10% in one day was 1957; Bitcoin has seen more than 10% wiped off its value a staggering 38 times since January 2012.
“You could also lose all of your money overnight; if for instance a hacker managed to break security.
“Doom mongers also say that the cryptocurrency bubble is about to burst, whilst others believe a Bitcoin could be worth $500,000 by 2030. It is highly speculative and arguably not able to be classed as investment.
“As such, if you’re interested in Bitcoin it should be with a tiny fraction of your investable assets and represent an amount that you can afford to lose overnight if the worst happened.
“That said, if you like a flutter and a bit of excitement this could be of interest and if you make £13.8 million in the next 6 years remember my name and mines a Guinness.”
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