The truth about Bitcoin
As financial advisers, our clients sometimes come to see us buzzing with enthusiasm for a new investment opportunity they’ve heard about.
Often, we find ourselves advising them against a particular course of action, rather than for it. Then we present them with more sensible alternatives.
The latest example: Bitcoin – that famous cryptocurrency that exists only as blips in the bowels of some distant supercomputer, probably in California. You may have been wondering about this too.
It’s mostly covered on social media, the press, or in conversation with the little old lady at the bus stop. All much-revered sources, to be sure. But do they have an adviser’s insight and perspective, the financial smarts to make an informed recommendation?
We would never recommend Bitcoin as an investment, and here’s why
First, everybody’s talking about it. That should set alarm bells ringing right away. People talk when they’ve heard of a sure-fire way to get rich quick. They haven’t, and there isn’t. Yes, Bitcoin had its party year in 2017, but in 2018 it went down like a wrinkly party balloon, losing 80% of its value.
Even our revered financial regulator – not normally one for blunt warnings – said of Bitcoin “Be prepared to lose all your money”. Anyone who follows the Financial Conduct Authority will know that’s about as close as they come to using the ‘F’ word!
Quite apart from Bitcoin’s extreme volatility, there are also more mundane security issues. As Bitcoin is a virtual currency that exists only on your computer, we already know it’s susceptible to being stolen by hackers. The regulator adds that, as cryptocurrencies are a new market, consumers are unlikely to have access to a compensation scheme, if they fall victim.
It’s the same in the US, by the way. If the Bitcoin bandits come to raid your village, the Man with no Name from the Securities and Exchange Commission can’t do much to help you.
Bitcoin also thrives on portraying an image of scarcity, with only 21m of the digital tokens in existence. However, it is a ‘fiat’ currency, not linked to the value of gold or other commodities. So what happens if, at some future time, some boardroom hotshot decides to ‘print’ more? Bitcoin is only as scarce as its programming dictates. It offers the perception of scarcity, without actually being scarce.
Are you beginning to see the value of quality financial advice?
The old lady at the bus stop is unlikely to have shared the above insights with you. She’d have missed her bus, for a start!
But Bitcoin is just the latest fad, the latest instance of a larger phenomenon. Questionable investment opportunities come along all the time, in different guises. Unregulated property developments overseas, investments in emerging market economies, even investments in small growing companies closer to home. They are all around us, and we have no way of judging the risks involved.
This is why there’s a need for the ongoing guidance and advice only available through an ongoing relationship with a financial adviser.
The key word here is ‘ongoing’. An adviser is not someone you turn to when you have a money problem. An adviser is someone you talk to regularly, instead of having the money problem, because we make sure you avoid them before they arise.
At Bow Financial Services, every client is unique, and working with each person over the long term helps us to know, almost instinctively, what’s required – sometimes even before they tell us themselves!
So if you have any questions or concerns about the latest investment fad, talk to us and we’ll explain the pros and cons as they apply to you.
One last thought on Bitcoin: the initial ‘Bitcoin fever’ was fuelled by the rise of the currency in 2017. Often, people making their own investment decisions can have moderate initial success, and talk happily to anyone who’ll listen about the gains they have made. They are forgetting that, for short-term investors in particular, history shows that there’s always an investment peak, and what goes up... well, doesn’t keep going up indefinitely.