Bitcoin: Should you invest or will it crash?

It’s the currency everyone’s talking about and some have reportedly made huge profits. So, are you missing out by not investing in Bitcoin?

Towards the end of last year, Bitcoin reached an important milestone when the price rose above $10,000 (£7,200 approx.) for the first time.

As a result, Bitcoin has continued to make news headlines which has increased awareness of the original cryptocurrency and the hundreds of others that have since emerged.

Those that have invested in Bitcoin so far have seen profitable returns and some of its original investors have made millions.

With this knowledge in mind, it’s understandable that more people are asking the question “Should I invest in Bitcoin?”  Here’s what Innes Reid, Leading Independent Financial Advisers, think you need to know:

The value of Bitcoin

To be created Bitcoin has to be mined and there are supposedly only a limited number (21 million) available. It’s therefore logical to think that if the demand were to go up, then so would the price.

However, a viable investment is when you buy something that creates products, services or cashflow for an extended period of time. It has financial value even if you don’t sell it. Good examples of investments include buying a business or a rental property.

Bitcoin cannot be considered to have this intrinsic value because it has been bought purely on the basis that it can be sold to someone for more money in the future. It is not useful, doesn’t generate money or have any social value unless it is sold.

You’re relying on speculation

Before parting with your cash on Bitcoin, it’s important to determine your attitude to risk.

When you purchase Bitcoin you are purely speculating that it will be worth more in the future. Just like when you gamble, if it goes well you can make serious amounts of money but if it goes wrong, you could lose everything.

In 2017, the value of Bitcoin rocketed. However, past performance cannot of course be used as an indicator of future performance.

In our Financial Trend Predictions for 2018 blog, we predicted that we thought the Bitcoin bubble was due to burst. Our prediction seems likely so far, as the value of Bitcoin has fallen from $17,163.38 on 7th January 2018 to $10,786.31 on 31st January 2018. However, we don’t know for sure that this fall will continue, it’s simply speculation.

If you don’t understand it, then don’t invest

Cryptocurrencies are a form of digital money that use encryption to secure transactions and control the creation of new units.

While you may not need to be an expert on the technical aspects of how the currency works, you do need to understand how it works as an investment. i.e. what drives the price up and down, can you get out of it when you want to and what the level of risk is.

Even if your friends and family have invested, you should not rely purely on their advice and do your own research so you know what you’re getting into.

Watch out for scams

Despite popular belief, Bitcoin in itself isn’t necessarily a scam, however, there can be a lot of scams involved with Bitcoin. For example, if you do invest in it, you will need to buy and store it safely. This can make way for illegitimate Bitcoin sellers to take advantage. So again, it’s essential that you read into this.

It is also widely reported that Bitcoin is frequently invested in by criminals to launder or hide their cash. Furthermore, Bitcoin is not Regulated by the Financial Conduct Authority or protected by the Financial Services Compensation Scheme.

What do the experts say?

Thought leaders within the financial services industry such as billionaire, Warren Buffet and Money Saving Expert, Martin Lewis categorically say no to investing in Bitcoin.

Top level, their reasons behind this decision include its high volatility, lack of obvious use other than a vehicle for investment and the bubble-like behaviour of its value.

To summarise, if it sounds too good to be true then it probably is. Innes Reid would always recommend opting for a long term investment plan over speculative gains. To find out more about the difference, call our experts on 01244 347583 or email: info@innesreid.co.uk.