All you need to know about Bitcoin

Harvey Jones

Is this cryptocurrency an overblown bubble or a once-in-a-lifetime opportunity?

There's no question which investment is generating the most excitement right now—yet it scarcely exists in the real world.

So-called cryptocurrency Bitcoin has risen by an incredible 500 per cent this year, and is attracting massive global attention as a result.

Investors who got in early have become super rich. The internet is buzzing with tales of people who picked up a few hundred coins for next to nothing to find they are worth millions today.

At the same time, financial experts are lining up to warn people about getting carried away, saying the Bitcoin bubble will surely burst.

Which one will it be?

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Coinage

Bitcoin is a virtual currency that exists only on computers. It's not regulated, and there is no nation state or central bank behind it.

It was created by a small group of anonymous hackers in 2009. Coins are mined by computers solving a set of complex maths problems and there are currently around 16.5 million in circulation, out of a finite supply of 21 million.

Supporters claim this makes it more stable than government-backed currencies, which can be devalued by central banks printing money.

Its value has soared to dizzying highs as more investors get a taste for Bitcoin, but with massive volatility as well.

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Big money

Bitcoin initially traded for just a few US cents. If you were lucky enough to load up on coins at that price, you need never work again. You might even be a billionaire.

In the last five years the price of a coin has soared from $10 to an incredible $7,300 at time of writing. It recently jumped $400 in a single day.

Seven years ago, two pizzas were bought for 10,000 bitcoin. Those pizzas are now worth $730 million, or rather 10,000 bitcoin is worth that amount.

So you can see why people are getting excited.

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Bubble mania

Bitcoin’s growth is accelerating, and so are the warnings about what can go wrong.

There are stories of people selling their lifetime savings and even their homes to put the proceeds into Bitcoin. Please do not do this.

Many have noted similarities with other historical bubbles, such as the South Sea bubble, tulip mania, and the dot.com frenzy.

Bitcoin is on the same trajectory.

 

 

Kill Bitcoin

The 64 million Bitcoin question is where the price goes next. There are massive dangers for investors tempted today.

Several currency exchanges have been hacked, meaning people have lost all their coins with no chance of reimbursement.

A global regulatory crackdown could theoretically kill Bitcoin overnight. China has been a massive source of demand, but the government is keen to block its citizens from transacting. Others could follow.

 

Word of warning

On the other hand, Bitcoin could become respectable. There are moves to get regulatory approval for trading the coin.

Nobody knows where Bitcoin goes next. If they claim they do know, they are lying. The price could hit $1 million one day, or collapse to nothing.

You should approach with extreme caution. Even if the price does continue to grow, it surely cannot maintain today's breakneck pace.

Buying Bitcoin is pure speculation and you should only invest money you can afford to lose. And I mean every single penny.

 

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