IF SOMETHING looks and feels too good to be true then chances are it probably is. So if the daily news of Bitcoin’s meteoric rise is whetting your appetite, you may want to take pause.
Yes, one Bitcoin has risen in value from practically nothing eight years ago to over £12,000 this week, but that is precisely why alarm bells should be ringing.
Not only has the rise been extremely volatile, with large - and inexplicable - swings upwards being followed by sizeable drops down, but it is now almost certainly in bubble territory.
It has become fashionable to compare Bitcoin mania to the tulip-bulb craze seen in Holland the 1600s, when demand sent prices soaring only for them to come crashing down overnight, leaving many investors in financial ruin in the process.
But the implication for Bitcoin investors is clear: the nominal value of one unit may currently be huge, but anyone buying in at that price could see it fall to zero if, as predicted, the bubble finally bursts.
Earlier this week the UK Government announced that it is to begin regulating cryptocurrencies in a move that will see online trading platforms carry out due diligence on customers who have until now been able to trade anonymously.
Nicholas Gregory, chief executive of London-based cryptocurrency business CommerceBlock, said the decision is a “stamp of approval that finally recognises the pivotal role that digital currencies will ultimately hold for the global economy”.
In some ways he is right. If traders are forced to disclose their identities it will give Bitcoin the air of legitimacy it currently lacks and may even make the swings in its value easier to track and understand.
Yet, as deVere Group chief executive Nigel Green pointed out “Bitcoin remains a major gamble as it is very much an unchartered-waters asset”.
So unless you’ve got a lot of cash you can stand to do without, this get rich quick scheme is probably not the one for you.
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