Bitcoins…love them, hate them or indifferent to them, they appear to be here to stay for the time being. Plus, with Bitcoin, there are now over 1650 other cryptocurrencies in existence which have a staggering combined total market capitalization of around $369 billion USD. So however you feel about the Bitcoin phenomena, you certainly can’t ignore it. *
But why has it caused so much debate amongst financial experts?
Launched in 2009, Bitcoin is recognised as the first cryptocurrency or digital money platform of its kind and has a limit of 21 million Bitcoins ever to be made available. Created by a software developer known only by the pseudonym Satoshi Nakamoto, it is not backed by any central bank, nor regulated by any state. With its original aim being to allow anonymous, untraceable, secure financial transactions to occur across the globe outside the control of governments, business or banks.
More recently, Bitcoin has taken the financial world by storm with its meteoric rise in value in 2017. From a relative low of $1260 AUD in January 2017, Bitcoin’s value skyrocketed to approx. $18,840 by December 2017 and today sits around $10,630 AUD. With this massive rise, many unwary investors have seen Bitcoin as a get rich quick investment vehicle. Meaning some have approached their mortgage broker to gain equity from their homes, look at refinancing or considered selling in order to buy the currency.
What’s the risk?
Bitcoin is very volatile. Experiencing huge swings in its price, Bitcoin has surged by as much as 80% within a month, however it has also plummeted in value by as much as -30% to 40% within days. ** So it is seen as highly risky and speculative.
To make matters worse, investors tend to buy when Bitcoin’s price is high and sell when it is low, so there is huge potential for losses. Plus experts are predicting that the bubble could burst, with the legendary stock market guru Warren Buffet warning investors, “Stay away from it. It’s a mirage, basically.” ***
There is also the danger of this online currency to be stolen by hackers or destroyed by computer viruses. So guaranteeing the protection of Bitcoins can be difficult.
Added to this is the cryptocurrency’s reputation for being used for organised crime, money laundering and murky transactions on the dark web. So some governments are looking to regulate.
All up, this is what makes Bitcoin a very risky business to me and you don’t need a mortgage calculator to figure that one out!
Until next time, stay aware, Harry