With news of some investors becoming Bitcoin millionaires and even billionaires, economists are warning that the volatile cryptocurrency amounts to little more than “fool’s gold”. For long-term, secure investments, property is still the market of choice for many…
Towards the end of last year, the value of Bitcoin soared to unprecedented heights, to the delight of anyone who had invested in it – particularly those who had taken a chance back in 2012, for example, when one Bitcoin was worth between $4 and $6. At its peak on 16 December last year, a single coin was worth $19,343 (around £14,000), making some investors overnight millionaires.
Businessmen the Winklevoss twins, who invested even earlier in the lifecycle back in 2010, are reported to be the world’s first Bitcoin billionaires, with a $1.3bn (£936m) cryptocurrency fortune. So why isn’t everyone jumping onto the Bitcoin bandwagon if it’s so easy to make a quick buck?
A life of extremes
The huge volatility of Bitcoin is one of the major reasons that banks, economists and financial experts are warning against investment in the cryptocurrency, or at least advising extreme caution. This year has been disastrous for the coin so far, after it lost more than half of its top value at the start of the year and has since continued to crash. Last week, it made its largest loss in a single week for more than four years, dropping down to $6,914 last Monday 5 February. So it’s still worth a huge amount of money, but the fact that it can gain and lose so much value in a matter of days, or even hours, is worrying.
The European Union’s banking, securities and insurance watchdog has warned: “Virtual currencies such as Bitcoin are subject to extreme price volatility and have shown clear signs of a pricing bubble and consumers buying VCs should be aware that there is a high risk that they will lose a large amount, or even all, of the money invested.
“They are highly risky, generally not backed by any tangible assets and unregulated under EU law, and do not, therefore, offer any legal protection to consumers.”
Bitcoin vs property
The idea of investments being backed by tangible assets is one of the reasons property market investment remains one of the most popular places for people to put their money, with 49% of UK adults choosing is as the best way of maximising your finances. Your investment is secured in bricks and mortar, price volatility is minimal, and investors can make long-term, steady gains through rental income as well as capital appreciation.
Of course, property and rental prices can go down as well as up, and making a successful investment can depend on property type, location, demand in the local area and getting it at the right price, as well as the cost of financing. Many advisers still recommend diversifying your assets, rather than putting all your eggs in one basket, but most investors still stand to make the best long-term gains from putting their cash into property.
Those hoping to double their money overnight through the likes of Bitcoin, as well as other popular cryptocurrencies such as Ripple, Ethereum and Litecoin, can do so at their own risk – and be prepared to lose their whole investment if the market does indeed turn out to be a bubble about to burst.