DEBATE: Is Bitcoin too volatile to be considered a serious investment?
Is Bitcoin too volatile and risky to be considered a serious investment?
Dr Savvas P Savouri, chief economist and partner at Toscafund Asset Management, says YES.
It is not that I simply don’t like bitcoin. I just don’t get what owning it is supposed to provide. There is no yield, it isn’t backed by any credible central bank, and little of what we buy can be purchased using it.
There are counter-arguments to all these points, so rather than go on in this vein, let me reflect on what you are not owning when you buy bitcoin: you do not own its valuable blockchain architecture.
Ownership of this is so contested that it is generating considerable fees for lawyers and patent specialists alike – fees which I very much doubt are being invested in bitcoin.
My advice to those enthused by bitcoin is to read Extraordinary Popular Delusions and the Madness of the Crowds by Charles Mackay. This brilliantly chronicles bubble after bubble which preceded this bitcoin one.
I might add that this tome was written in 1841, which only goes to prove that we never seem to learn.
Read more: It's another rollercoaster day for bitcoin
Iqbal Gandham, UK managing director at eToro, says NO.
Bitcoin is still finding its feet. But the underlying technology that sits behind it – blockchain – is already well established, boding well for the future.
As with any early stage asset or startup, external events will cause price movements. However, this does not rule out bitcoin as a serious investment. In fact, for most investments, volatility is part of the game. And for long-term investors, price swings will be less of a concern.
As with all investment strategies, individuals are best placed to diversify across asset classes. So an investor may wish to invest in a range of cryptocurrencies, or in bitcoin as part of a wider portfolio.
Investors diversify across traditional asset classes to minimise risk. Cryptocurrencies are no different.
The biggest risk in sceptics’ view is that bitcoin is in a bubble. Worth keeping in mind is that in order for bitcoin to be used in an everyday way – as intended when it was created – the price of an individual bitcoin needs to be much higher than it is right now.
Read more: Fed official warns bitcoin could pose a threat to financial stability