Bitcoin – The Golden Goose or Emperor’s New Clothes?
The last crypto crash still sticks firmly in memory, but in the last 12 months Bitcoin's value has risen over 300%, surpassing $38K at the start of 2021.
With Elon Musk’s latest endorsement still reverberating around social media, Bitcoin surged to above $46,000 this week, and left many investors asking is this a bubble or can it continue?
The only certain answer someone can give of course is that we just don’t know! But for many, the last crypto crash still sticks firmly in their memory. And whilst past performance should never be used as a guarantee, there's a phrase in investing that says “history doesn't repeat itself, but it often rhymes”
Over the past 12 months, bitcoin has gone up well in excess of 300% which in isolation is an excellent return. However, if you look back to 2017, Bitcoin's price went up 1,800% in a 12-month period only to fall 80% over the next six months.
As with any investment, there's no magic bell that rings when we're at the top, and no one really knows where the top or indeed the bottom of our investments are. And as a result, this crash caught lots of people out.
Whilst there’s a lot to be said for incorporating some level of volatility into a wider investment portfolio, ploughing your life savings into Bitcoin in the hope that 2017’s lofty heights are reached again would be an incredibly risky move.
The Financial Conduct Authority’s recent warning of the risks of investing in cryptocurrency should serve as a timely reminder to those considering doing just that.
“Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money.”
The FCA’s list of concerns highlighted a lack of consumer protection and the significant price volatility in cryptoassets, which combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
And when Musk revealed his company had bought $1.5 billion of Bitcoin, the price surged again, lawyers warned the Tesla CEO that he could face questions from the US Security and Exchange Commission.
But All Investments Involve Risk?
While investing in shares poses a risk, you can analyse the company and you can look at its balance sheet. With a bond you know what its yields are, and you can look at the credit worthiness of the company issuing the bond. Bitcoin on the other hand has no fundamentals and it's not backed by anything, so the price is purely based on investor sentiment. And sentiment isn't something that anyone can predict or analyse.
Investment In Knowledge Pays The Best Interest
In the same way that you wouldn’t ask a financial planner for tips on what to look for when purchasing a electric car, it’s probably not wise to base your investment decisions on tweets by a tech entrepreneur! Thankfully Skybound Wealth Management’s team of global investing experts are on hand to share the knowledge they have gained over many years of supporting international workers with their financial planning needs.
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