Bitcoin Value: There’s only one story this month…

Bitcoin has been steadily gaining ground as an exciting investment for the whole year, give or take a few minor dips. At the time of writing (8th December), the price briefly topped £12,500 – £12,615, to be exact – with the week’s 70% rise in value being likened to “a charging train with no brakes” (Shane Chanel, ASR Wealth Advisers).

However, is this the predicted flight that Bitcoin enthusiasts have always predicted, or is it a bubble of the kind of proportions not seen since the early 18th century?

The South Sea Bubble

In 1720, England – temporarily, and not for the first or last time – went mad. One firm, the South Sea Company, underwrote the entire national debt, at that time a staggering £30 million, at a rate of 5% interest from the government. Shares in the company, which had also been granted a monopoly to trade in South America, rose to ten times their value, and as a consequence, people saw share trading as a way to make a lot of money, very quickly. Many of the companies set up just to float were ludicrous – one was a gun manufactured to fire square cannon balls, and another “for carrying-on an undertaking of great advantage but no-one to know what it is”; in other words, investors were probably putting money into the fresh air!

The bubble, inevitably, burst. People all over England lost everything, from domestic staff right through to the gentry, and suicides were as common as they were in the 1929 Wall Street Crash, including the Postmaster General, who poisoned himself. The South Sea Company Directors were arrested, and the Riot Act was read.

Eventually, Robert Walpole’s firm hand as the new Chancellor of Exchequer cleared up the mess, dividing the national debt into three. Stability returned – eventually.

But Bitcoin isn’t going to do that, is it?

The simple answer is, nobody knows. Futures exchanges are selling contracts for Bitcoin, even though the Futures Industry Association has some concern that the contracts have been approved “without properly weighing the risks”, and that it might be a bubble just waiting to pop.

Nigel Green, founder and chief executive of deVere Group’s concern is that Bitcoin as an asset represents “uncharted waters” for investors. However, the value invested is still relatively small compared with other classes of asset, so even if the Bitcoin bubble does burst, it’s hardly going to have the South Sea effect on the economy.

Personally, we think cryptocurrency is the future of border-free payments, and therefore an interesting investment (we wouldn’t be writing here if we didn’t), and that the value will fluctuate, as with any ‘currency’, real or virtual. Has it topped out in value? Who can tell, but the best advice for anyone investing in Bitcoin or any other stock remains the same; never invest more than you can afford to lose, and always bear in mind that share value can go down as well as up.