In these strangest of times it shouldn’t come as a surprise that one of the biggest investment winners has nothing to do with real money. It is ‘cryptocurrency’ Bitcoin. But investment experts are divided over whether its recent surge in price can be sustained.
While some, such as asset manager Ruffer, have embraced it within their investment portfolios, others fear it could be heading for a sharp fall – as happened in early 2018.
Mark Ward, head of trading at wealth manager Sanlam UK, warns: ‘The current price of Bitcoin represents danger for investors. It is primed for the next downward move.’
New record highs: Bitcoin went above $29,600 (£21,645) on January 1
Last month, Bitcoin broke through the $20,000 (£14,870) barrier for the first time, before rising even higher at the start of the New Year – it went above $29,600 (£21,645) on January 1.
It is nearly four times its value at the start of 2020 when it traded at $7,175 (£5,320). A decade ago, you could buy it for 7p.
Despite this meteoric rise, most investors have little idea what a Bitcoin is – and mystery surrounds what makes it valuable. In simple terms, Bitcoin is a computer file stored in a ‘virtual wallet’. It can either be saved or traded for goods and services from businesses that accept the technology.
It is called a cryptocurrency because the computer programme used to make Bitcoin employs cryptography – or secret codes. This provides a layer of security to stop hackers stealing it.
A record of all Bitcoin is kept within a ‘blockchain’. This is a database containing details of all transactions that have taken place and it provides a marketplace where buyers and sellers can trade their Bitcoin.
Its origins are steeped in mystery – having been created in 2009 by an enigmatic Japanese computer coding expert calling himself Satoshi Nakamoto.
The number of Bitcoins in circulation will never exceed 21million due to the way computer software used to create the currency has been engineered.
Any new currency can initially only be found through an online exploration process known as ‘mining’. So far 19million have been mined using super-powerful computers that go through reams of mathematical permutations to find the hidden codes.
Financial consultants at deVere believe it is this finite limit that has been responsible for Bitcoin soaring in value.
Nigel Green, chief executive of deVere, says: ‘We believe this cryptocurrency is the future of money. The staggering pace of the digitalisation of our lives, with increased use of computers and online trading, means digital money is here to stay.’
He adds: ‘When facing times of trouble – such as those we are in right now – central banks are forced to print more money to support their economies. This depresses the value of traditional currencies. But Bitcoin is a safe haven asset that is not devalued. As a borderless currency it suits the modern world.’
Late last year, asset manager Ruffer snapped up Bitcoin worth at least…