Highs and lows on the Bitcoin rollercoaster - Jim Duffy

No serious pension fund manager will risk 100m in Bitcoin in the near-term, says Duffy. Picture: Contributed
No serious pension fund manager will risk 100m in Bitcoin in the near-term, says Duffy. Picture: Contributed
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With stock markets tumbling across the globe due to the uncertainties surrounding coronavirus, it seems that Bitcoin is where investors have put their cash. Over the last week, the cryptocurrency has risen 22 per cent. After an all-time high close to $20,000 in 2017, the next peak was just under $13,000 in 2019. Where is this digital coin expected to go from here?

Bitcoin is in my opinion the biggest bet on the crypto casino. Not a winner that will break the house by any manner of means, but it has the potential to make investors a nice little earner.

Those who were there in the very early days of Bitcoin ten years ago have since become crypto millionaires. But, unlike many stocks in the more traditional markets, the volatility of Bitcoin seems to be relished by advocates while detractors shout loudly. While stock ­markets have fallen as a result of coronavirus, Bitcoin has soared. Yet just as quickly as it can rise, it can fall. This cryptocurrency is “speculation” on steroids.

Only this week, one of the better known crypto commentators on the newsfeeds I follow (I know, how sad) said the volatility of Bitcoin will astound new investors over the next year. It appears that after the “Halvening” event in May, where essentially Bitcoin becomes more scarce, the coin could see sudden parabolic rises from its current level of around $9,000 to over $20,000. Then to $50,000 and beyond. With all that excitement, it will fall just as heavily, before shooting up again.

Whether Bitcoin does rocket to $50,000 this year is, in my estimation, a load of cobblers. But, just like the crypto bulls out there filling the ether with wild forecasts, I could also be very wrong. This is the ­character that Bitcoin has created for itself. One of uncanny uncertainty.

Bitcoin is its own worst enemy

It has cloaked itself in an aura that resembles a Harry Potter movie. Only, rather than looking like wee Harry, it feels a bit like Voldemort. So, should, or would, any ­sensible investor take a punt on this rollercoaster that has no one at the controls? Well, I know many friends and colleagues who have. Not only have they invested in Bitcoin and other cryptocurrencies, they actually view them as a key component part of their retirement planning.

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Unlike a traditional investment in pension stocks via online portals of recognised high street names, putting cash into Bitcoin is very much a self-investment gig. One has to weigh up the loss potential, which could be worse than even that of a Woodford investment.

Bitcoin could plummet violently losing over 50 per cent of its value, then climb 20 per cent the next day. This is why it is its own worst enemy as an investment, while at the same time being a “stock-pick” for many. No serious pension fund manager will risk £100 million in Bitcoin in the near-term. The fallout of getting it wrong would be career-ending. But, that is exactly what Bitcoin needs to make its ascent into the stratosphere.

The cryptosphere is no different to other markets. It relies on sentiment, analysis, news makers and a bit of edge. It needs capital to grow and currently there is extra liquidity in the market due to circumstances globally. My guess is that once the authorities get the virus under control, traditional indices like the Dow and the FTSE will recoup their gains and the cryptomarket will see cash pour out of it. But, it is only when serious investment houses make a decision to stay with Bitcoin for the long-term, then it will perhaps make these big jumps and sustain them.

US attempts to “professionalise” investment in Bitcoin have gained no traction, albeit many commentators believe the next two years may see a Securities and Exchange Commission-approved investment vehicle. If this does happen, the big jumps in value will take place coupled with heightened volatility. It is not for the faint hearted to stick 20 per cent of one’s pension pot into Bitcoin. Mind you, there are always brave souls who may be up for those odds.

- Jim Duffy MBE, Create Special.