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Beware A Bitcoin Bubble

Money-launderers, terrorists, hackers, and scammers use cryptocurrencies. Should you? No, says Pie Funds CEO and founder Mike Taylor.

18 October 2021

Autumn 21

Bitcoin reached its all-time high of over US$40,000 in early January 2021, generating a wave of interest in the cryptocurrency.

I haven’t written about Bitcoin since its last peak at US$20,000 in December 2017, after which it promptly collapsed to below US$5,000. So, be warned.

Bitcoin’s a digital currency created in 2009 as an alternative to government-issued currencies. There are no physical Bitcoins – it’s created, traded, and stored within a computer system called blockchain technology. It’s not legal tender.

Demand is driving the value of Bitcoin higher but, to me, it’s speculative mania and a pure bubble. It was created out of thin air, it’s not real money, and anyone buying it is just gambling it’ll be worth more tomorrow.

There are also other risks – a lack of regulation, and the fact that the systems and people who use them are often a target for hackers and scammers. Of the people I know who are trading it, not one is actually going to use it, even if they could.

It’s not even that easy to buy. Bitcoin has been created using blockchain technology by those looking to create a way around government-backed money. That makes it perfect for terrorists and the like.

Its value, however, thrives on the ‘bigger fool’ theory. If you believe in the complete collapse of the financial system, you like to have a punt, or you think I’m completely wrong, then go ahead.

But remember, for something to be money it must be accepted as a method or medium of exchange, it must be a unit of accounting, and a store of value.

Bitcoin is none of these. I can’t use Bitcoin on Amazon, its price is quoted in US dollars, not the other way around, and its value is volatile.

Even if I’m completely wrong, and Bitcoin becomes widely accepted as a niche currency, it’ll need to establish some price stability.

Do you want your wages paid in Bitcoin when it could be worth 20 per cent less overnight? Until that happens, it just remains another speculative asset.

Mike Taylor is the CEO and founder of Pie Funds. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. You may wish to discuss with an independent financial adviser before relying on it.

Still keen to invest in Bitcoin?

Here are some things to think about before investing in cryptocurrency:

  • Are you investing money you can afford to lose? Bitcoin’s value can fall quickly and dramatically, and this may happen just at the time when you’d like to withdraw your money and spend it.
  • Do you have debt? If you have high-interest debt, such as personal loans or credit cards, it’s best to pay this off before you considering any investments.
  • Do you have an emergency fund? Start with $500 spare and try to build up to three months’ worth of expenses. This is your safety net when things go wrong. Avoid viewing any money invested as your emergency fund because its value could change.
  • Are you aware of all the risks involved? Investing comes with risks and investing in cryptocurrency is high-risk.
  • Are you comfortable investing in something you don’t understand? For many people, how cryptocurrencies work and who is behind them is completely unknown, or the information has not been made public.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.

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