By Brian Spence
“Should I buy into the current bitcoin scheme?”, I was asked for the umpteenth time this week. My experience shouts “No!” – and especially not if you are labelling it a ‘scheme’. But am I like the horse-riding mayor of yesteryear, sneering at Henry Ford? Let’s take a look.
Bitcoin and other digital currencies are enabled by blockchain which keeps a public record for all to see – except they just see you as holder. So public but hidden. This crypto-currency has doubled in value in less than 2 months from US$5,000 to $10,000 this week. By way of comparison, the biggest year for US stocks was in 1915 when the Dow Jones industrial average went up by 82 per cent. One-tenth of bitcoin’s rise this year.
As always, the price of everything and anything is simply down to supply and demand. A) How much is there. B) And how much do people want it? That logic applies to Cristiano Ronaldo (A. Only one and B. a lot). Cabbages. (A.Tons and B.not a lot). And bitcoin. (A. Some. B. Loads).
What’s the process?
A friend of mine decided to do some research, so she set up an account with Coinify and spent $200 on bitcoin. ($200 which I wouldn’t be surprised if she lost. This was all in the name of research, not greed). What a laborious process! Passport uploads. Full address entered. Phone numbers. Codes sent to mobile phones. First card flat out declined. Second card triggered an immediate fraud alert and call from the bank. And after all that - a one day verification process but an emailed receipt from Coinify in Denmark. Blimey!! I suspect the drug dealers don’t hang out here – this site knows more about me than my sister! Anyway. I am now the sceptical owner of 0.02603156 BTC.
Should we or shouldn’t we
Every bubble follows a pattern. And when non-experts like myself write blogs such as this for non-experts like most of us – well we’re typically in the Greed stage of the bubble. Which usually comes before meltdown. I reference South Sea bubbles, tulips and the dot.com crash. So although more than $5 billion was traded on bitcoin exchanges last Sunday, I prefer to sit this one out, allocating the bare minimum to be able to write about the process and experience. There are so many regulatory risks, risks of the unknown and risks of a panicked run in Bitcoin that I’m not prepared to take the punt.
Anyone who does want to buy in at this stage should treat it like gambling and only put in what they can afford to lose.
Just when you thought your brain might fry, the Chicago Mercantile Exchange will launch Bitcoin futures in December. So people can short Bitcoin. Which one fund manager I spoke to thought could further boost the price as people bet on it falling, it doesn’t at first and then people are forced to close out their positions and…..ouch…..
* Brian Spence is Wealth Manager of the OIB Financial Services, a regular contributor in the UK financial press and has a deep understanding of the financial services community.