The hot topic on every prospective investor or punter’s lips at the moment is “Bitcoin” or some other form of crypto currency investment. What has caused this feeding frenzy around Bitcoin and why is everybody now desperately looking for an angle with which to get exposure to this so called holy grail of sure profit?
Bitcoin is a crypto currency, a digital asset designed to work as a medium of monetary exchange that uses cryptography to control its creation and management, rather than relying on central authorities, such as Reserve Banks. No single country or economy owns Bitcoin. Bitcoin is not a new phenomenon, in January 2009, the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins.
The price of Bitcoin has since then, shown steady growth, with marginal volatility, until the beginning of this year, when the price of this crypto currency went stratospheric.
The current Year To Date (YTD) return of Bitcoin is a whopping 255%. This sort of growth is best reflected in a graph that depicts the true nature of this feeding frenzy.
The million Dollar question, or probably better phrased, the trillion Bitcoin question, is where to from now?
There is no doubt that we are living in a world of rapid fundamental change and that age-old paradigms need to be revisited and challenged. There is also no doubt that in the future, a version of crypto currency will play a role in economic transactions and a means of trading between parties. But, when it will enter mainstream and what form it will take, is yet to be resolved.
What is clear, is that currently, Bitcoin is in perfect “bubble” territory. New investors should enter Bitcoin at these elevated price levels with loud warning signals ringing in their ears. Some exposure in your portfolio to a crypto currency in the future, is probably going to be part of mainstream investment portfolio diversification strategy. But when and at what price is the name of the game.
The other two dilemmas that investors face is how exactly does one get exposure to Bitcoin, and is Bitcoin going to be the eventual winner in the crypto currency wars. There are many so called peddlers of these crypto currencies, and caution should taken as to whom you part your money to.
At times such as these, I am often reminded of the two age old investment truths, “there is no such thing as a free lunch”, and “if it’s too good to be true, it probably is”!