In 2009 pop singer Lily Allen turned down an offer of 200,000 bitcoin to sing a track on an online game. Today the value of that performance is an astonishing £2.56bn. We are truly in the grips of an unbelievable speculative mania.
Two years ago 1 bitcoin was priced at £290; a year ago its value was £620, six months ago this price was £2,100; three months ago 1 bitcoin would have set you back £3,000. Then matters got even more insane. A month ago its price had surged to £4,700, a week ago it was £8,700 and now it trades at £12,800. By the time you read this article these numbers will be out of date but you get the picture.
People talk of stock market bubbles but this is on a different scale. The biggest annual rise of any stock market on record was about 170 per cent. Already Bitcoin is up nearly 2000 per cent over the last twelve months.
Price movements like these attract speculators and fraudsters in their droves. As with some bubbles, like the internet boom of the late 1990s, there is the promise of a major technological revolution. There would be no need for intermediaries like credit card companies to verify and execute a transaction. But will Bitcoin really disrupt the world order?
There is no way, governments and their central banks, will give up their monopoly over supplying money. There is a huge political incentive to regulate crypto currencies out of existence. If a serious terrorist incident in the US were found to be backed by bitcoin, this would be a political pretext to strangle users with regulation. Further how can a digital asset like Bitcoin be a basis for a stable financial framework when its price can go up 20 times in a year!
Bitcoin has been in existence for 8 years and overwhelmingly its uses have been confined to two areas: criminal activity and speculation.
Finally, is a bitcoin a safe vehicle to store your wealth? Who knows? But we can say one thing that the rising value of bitcoin will make the cryptocurrency exchanges a prime target for hacking. The anonymity associated with bitcoin transactions means that any money losses will be irretrievable.
The message is the same as when we first commented on Bitcoin. Don’t invest in anything you don’t fully understand.
Try not to worry about losing out to the next investment craze otherwise you risk losing your shirt; keep your investment strategy simple, take advice and avoid sleepless nights.