Bitcoin – What’s it all about?

Bitcoin is a digital- or crypto-currency.

It is one of thousands. You might have heard of some of the others too – ethereum, dogecoin, binance, tether, to name a few.

A BRIEF HISTORY

Bitcoin was created in 2009 as a reaction to the credit crunch, when there was a general feeling that some people were not happy with big banks seemingly being in control of the world.

The creator of bitcoin (who remains anonymous to this day) created a currency that was decentralised – that is, not reliant upon any one bank or government to regulate it. Many other techies followed suit and created their own versions.

Bringing the power to the people you might say.

Since then, these currencies have bubbled away, bobbing up and down in terms of their “value”.

In recent years though, they have exploded. One bitcoin could now set you back tens of thousands of pounds (though of course you can buy fractions of them). We’ve all heard stories of someone’s friend’s cousin’s brother that’s made a fortune and bought themselves an Audi with the proceeds.

But are things really as they seem? Or is this all too good to be true?

RIGHT PLACE, RIGHT TIME

It is true that bitcoins have increased dramatically in value in recent years. And of course, there will be a fortunate few who were there right at the start, perhaps they bought a few bitcoins on a whim or as an experiment, or being intrigued by the technology, and have made a tidy profit.

However, if you weren’t one of these very early adopters, the outcome is likely to be much less clear for you.

RISK

The crypto market is more volatile than any other stock market – your value can vary wildly from day-to-day.

Most of us aren’t willing to take that kind of chance with our hard-earned cash if we really thought about it. Sure, if you have loads to spare, maybe. But that’s not the case for most of us. And let’s be real, if you’re punting with the odd £50 or so, even with a fair wind it is gonna be a fair while before you can buy that Audi with your profits….

A PINCH OF SALT

My advice – take those megabucks profit stories with a large pinch of salt. Remember that for every winner there’s a loser (or 10) who got in or out at the wrong time. Those guys just aren’t going around shouting about it like the lucky few are.

If you’re going to invest in crypto, do your research (and don’t lose your wallet key!!).

AN ADVISER’S VIEW

It’s fascinating to me as a financial adviser to meet and speak to people who have bought cryptocurrencies, and I enjoy discussing it.

Many clients I encounter have recently bought bitcoin, or other cryptocurrencies, with some of their savings. However, I’ve not come across anyone who has done so because they are a real fanatic about blockchain technology or the libertarian ideals that underpin it. I would hazard a guess that many investors in bitcoin don’t know much at all about blockchain (it is pretty intense stuff).

ECO CONSCIOUSNESS  

It is also my experience that many of us millennials and GenZers want to invest our money in a way that’s good for the planet, which is a commendable goal – but something which unfortunately at the moment bitcoin cannot claim to do – the energy used to run bitcoin is almost as much as the entire UAE burns through each year, and I personally think very few investors realise this.

NERVES

I speak to many people who are nervous to invest in the stock market as there is a perception of risk and threat of loss. Cryptocurrency investing is like stock market investing on steroids. Losses can be much bigger, and happen much quicker. Regulation in the crypto space is patchy to say the least, with no meaningful consumer protection. So why does it still appeal?

THE FUTURE

I do think that being an ‘early adopter’ tempts us – what if bitcoin does become a global currency and you missed out? Nobody wants to look stupid. However, at the moment cryptocurrencies exhibit many of the characteristics of a bubble – the last comparable one being the 2000 tech bubble. And whilst some companies have survived and thrived since (Amazon for example) or even didn’t exist back then (e.g. Airbnb) – there are dozens that died off – Yahoo or AOL come to mind. Right now, there are thousands of cryptocurrencies out there and dozens of other uses for blockchain –who is to say that Bitcoin will be the eventual champion? Or that currencies will be the success story of blockchain technology? Or maybe even that the actual future golden child of blockchain has been invented yet?

For me, it’s early days. I will continue to watch developments in cryptocurrency and blockchain with genuine interest!

*DISCLAIMER*

At the moment SpringGen cannot advise you on cryptocurrencies.

V1 08/09/2021

SpringGen Advice Limited (FCA no: 926966) is an appointed representative of Acumen Financial Planning (FCA no: 218745), authorised and regulated by the Financial Conduct Authority. This content does not constitute advice.