What does the chart show?
It illustrates how bitcoin’s value has soared in recent weeks, driven by positive news from Australia, which will end the double taxation of the crypto currency from July, and Japan’s legalisation of the currency in March. Since the year began, bitcoin has jumped in value by almost 900 per cent.
One bitcoin was this week worth more than £1,300 — more than an ounce of gold. If, at the start of 2011, you had invested £1,000 in bitcoins (which were launched by the elusive Satoshi Nakamoto in 2009), your investment would now be worth £7m — while the equivalent amount placed in gold over the same period would have grown by just £42, according to FT research.
A correction on Monday may have sliced 7 per cent off its value, but by the end of Tuesday, bitcoin’s value had surpassed its Monday close.
Why am I hearing more about bitcoin at the moment?
Not for good reasons. The perpetrators of the global malware hack, which brought IT systems around the world to a crashing halt last week, demanded $300 in bitcoins to unfreeze each computer. Long seen as the currency of choice for drug dealers and dark web aficionados, bitcoin is still a long way from acceptability as a mainstream, or even common, asset class.
“They’re not on our radar at all,” says Danny Cox, a chartered financial planner at Hargreaves Lansdown. “These crypto currencies are all relatively new — and have they stood the test of time? Not yet.”
So how do I buy bitcoins?
There are a range of online platforms available and investors need as little as £50 to get going. Bitstamp, Coinbase and CoinCorner all cater for smaller investors — as well as traders and larger institutions.
This is still a relatively new market and investors should only use FCA-registered firms.
What risks should I be concerned about?
Volatility. The value of bitcoin might be steaming ahead now, but it has not always been plain sailing. In 2013, the currency lost half of its value in just six hours when BTC China, then the world’s largest bitcoin exchange by volume, said it could no longer accept local currency deposits.
Further bad news buffeted the new currency’s value the following year, when Mt Gox, a Tokyo-based bitcoin exchange, suspended trading and announced $460m worth of investors’ bitcoin holdings had gone missing.
Phil Collins, chief operating officer at bitcoin seller CoinCorner, says security worries have been eased by the development of systems to hold bitcoins offline, in what is known as “cold storage”.
“This would be on a non-internet connected device, so unhackable,” he explains. CoinCorner, for example, holds 90 per cent of its bitcoins offline in cold storage. “So heaven forbid we get hacked, the vast majority would be protected.”
But with risks come potential returns. Many larger financial advisers and wealth managers steer clear of advising clients to dip their toe in the water. Brewin Dolphin, for example, does not invest clients’ funds in bitcoin, as the currency remains “volatile and speculative”. Yet the growing acceptability of bitcoins by governments, including Japan and Australia in recent months, suggests the currency might be here to stay.