Bitcoin - bonanza or blowout?

Over the last few years, bitcoin has caught the attention of millions of Brits and created wealth and destroyed wealth in many households. Even the most financially staid have felt a frisson of FOMO as it soared. And more City Big Wigs than you’d imagine have secretly admitted to me how much they have in bitcoin.

But the other side of this digital coin is a world of crime, murkiness, and frankly, uncertainty. Over the last year, the price has gone from £23,104 to £47,258, but this disguises a hell of a lot of bumps in the road. Over the last three weeks, it has fallen by 15%, so your bitcoin fortunes are very closely aligned to precisely when you buy and precisely when you sell.

I asked our research team to give me the crypto facts. What’s everyone else doing?

7% of all UK adults own Crypto and this has been pretty constant since 2022. The mostly likely people to have crypto are men under 44 – 15% of them have it. And then the next most likely group to own it are men aged between 45 and 54.

It’s also more popular with younger women than older women – 8% of women under 35 have crypto, but this falls to just 2% of women who are older than 45.

And it’s not the fat cats who are biting – those most likely to buy crypto are people who have a savings and investment stash of between £10,000 and £100,000. Those with higher savings are less likely to get involved.

People ask me what my take on crypto is. In a nutshell, I think it’s just too risky.

I absolutely see the power of the blockchain which underpins this. When I was struggling to get my head around this a few years ago, it was the example of how this is used by Costa Rica’s real estate sector which was my lightbulb moment. The blockchain technology removes layers of people, all susceptible to mistakes and fraud, and creates a decentralised (no single Big Dog is in charge or holds the keys) tamper-proof data base for property titles and transaction histories, reducing the risk of fraud and errors. No-one can shove the blockchain an envelope full of tenners to change the record.

This ability to remove the middleman is brilliant. At one point, the Australian Stock Exchange entertained this idea – Imagine a world of buying and selling shares without a stock exchange. But the plans were dropped at the end of 2022, presumably because some of the turkeys realised they were voting for Christmas? Or more fairly, as the risks of this relatively new technology were too great at the time.

Although the blockchain is powerful, I think bitcoin (as an example of crypto) is in the gambling pot and not the investment pot. I know. Boring old me! But it breaks all my rules. It’s not diversified. I don’t trust the people behind it (in this case, because I can’t see them and I know I don’t have to go too far along the chain to find a seriously bad-ass crook). I don’t understand it well enough to confidently explain it in detail. It doesn’t do or create anything. And I have absolutely no basis for determining its future value.

One of the problems with owning bitcoin used to be access to it. My earliest test account was with blockchain.com. When they introduced two-factor authentication, it broke. I couldn’t sell the bitcoin. Neither could I access my account and there was no-one to call about it. It took me over a year of Kafka-esque dead-ends and head-bangingly awful mazes to get this rectified.

In January this year, the US regulator approved the first exchange traded funds (ETFs) which track bitcoin. This means that instead of the whole hoopla of creating a wallet, creating a 12 word memorable (haha) phrase and associated drama, investors can now buy a simpler bitcoin ETF. The British regulator hasn’t approved them here yet but some say it’s just a matter of time.

BlackRock’s iShares and Invesco are examples of global institutions which offer these products. And the governance associated with these brands at least removes about 4 of the gazillion risks associated with bitcoin.

So what would I say to someone asking me about bitcoin down the pub? I’d say I didn’t like it. I’d say that I was probably very boring and there was a chance they could double their money or more, and laugh at me down the track. But there was also a chance they could lose it all. So, if you can afford that risk, then go for it, but treat it like a trip to the casino.

And with my Mum's hat on, I’d say if you have to do it, maybe limit it to no more than 10% of your savings, and use an ETF for ease (examples include the Invesco Coinshares Global BlockChain ETF or the Bitwise Crypto Industry Innovators ETF but these are very risky so be warned). Another hard lesson I learned in the dot.com crash of 2000, is that if you’re having a punt on something you don’t understand, and it doubles, sell half of it. Write this number down when you ‘invest’ (i.e. the purchase price x 2) and be strict about sticking to it. That way, you bank the amount you invested in the first place, and any other gains are pure joy. And if it all comes down around your ears, you haven’t lost anything other than your pride.

I lost a lot more than my pride in 2000. My most ludicrous investment was in a company called Sausage Software which listed at around 75 cents, peaked at over $7 and then fell to an empty, soggy casing. Stupid bloody sausage! An expensive but powerful lesson which explains why these days, half of my pension sits in a very boring Vanguard LifeStrategy 100% equity fund and away it boringly chugs!

Have a great weekend everyone. Try not to worry about the weather. I take solace that on planet WASP-43b, the wind speeds are forecast to hit 5,000 mph. Compared to that, we live in paradise!

Holly

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