I have no hatred for what is probably the most exciting financial prospect in popular demand; Bitcoin has made many people very rich, an enticing prospect to almost everyone - who doesn’t dream of wealth and peace-of-mind?
My issue is the widespread misunderstanding of what Bitcoin actually is, along with the fact that almost every member of the public lacks an understanding of its nature as an investment, despite being all too ready to throw hundreds, if not thousands, of pounds into this mysterious money-maker.
Let’s say you’re in your twenties, you have a small amount of money to use however you want and you dream of being financially successful in the future – Bitcoin sounds pretty good, right? Our parents' generation strongly believes in the idea that you must work hard, get a good job, preferably one that is well-paying, all so you can retire in peace. The fact is, we live in a very different world to the previous generation. We have more opportunities and knowledge available to us, so why can’t we earn money faster and live a longer life of luxury, travel, and philanthropy? The possibility and potential are certainly there, but we can’t afford to be short-sighted and jump into an opportunity thinking it is the opportunity.
Bitcoin is purely speculative, an asset with no use but its perceived future value. Bitcoin is assumed to derive its value and purpose as a unit of currency, although a currency fails if it is not widely accepted and officially recognised. So how does this happen? Essentially, the central banks and governments would have to acknowledge its role relative to the economy. If you know a bit about Bitcoin you may be aware that one of its main, and favoured, features is its decentralised nature – meaning it is separate from the control and management of political institutions. It is illogical to assume the central banks would recognise Bitcoin as a new currency as it would make their own role (of stabilising the economy and issuing new currency) redundant.
So why Bitcoin? This is the issue. Bitcoin is new, exciting, and sexy. That’s about it. I favour a digital currency replacing our current methods of payment, which is likely to develop in the way of government-backed stablecoins (a development already being researched by our central banks and financial institutions). Digital currencies, in my opinion, have a valid place in our future, but Bitcoin, one specific cryptocurrency, does not.
The temptation of this money-maker is of course strong, as was the case for tulips in the Netherlands in the 17th century. A speculative bubble arose where people bought tulips (yes, the flower) believing that someone would pay more for them the next day. These bubbles, as shown in our tulip example, can happen with anything, which is why I believe that if people don’t understand an asset but continue to trade in it, very soon many naive and unsuspecting people will lose everything.
You’re smart enough to know people don’t just make millions for adding no value, so I would encourage you to use your logical side when making financial decisions rather than your emotional ‘gut instinct’. I wish you luck and above all else, don’t be an idiot, avoid Bitcoin.