RECENTLY, a reader of this column emailed me about advice on bitcoin investing. My view is that investing – or rather speculating with Bitcoin – is like currency trading on steroids.Let me explain what Bitcoins are and why I think it is unwise to view them as an “investment”.Bitcoins have been in the news a lot recently as they (once again) exceeded the magical price of $1,000 for a single bitcoin in January of 2017, before dropping below again.Bitcoins were the best-performing currency of 2016, increasing a whopping 120% in value, far exceeding the 20% gain made by the Russian Rouble and the Brazilian Real.Bitcoins were created in 2009 by “Satoshi Nakamoto” and despite serious efforts, the real name of the creator is still shrouded in mystery.Bitcoins are “mined” by computers which perform blocks of calculations.The reward you receive in bitcoins for a block of calculations, drops by 50% every time 210,000 blocks have been “mined”.This means that, over time, in order to earn a bitcoin, more and more blocks of calculations will need to be performed.Due to this exponential rule, the last bitcoins won’t be mined for another 100 years or so (the currency has a limited supply of 21 million bitcoins), but 75% of all bitcoins are already in circulation!Bitcoins work through the blockchain technology, which contains a public ledger of all bitcoin transactions ever conducted. The public ledger grows as new bitcoins are mined and transactions are conducted.Many banks experiment with the blockchain technology in order to make their own transactions safer.The Winklevoss twins – the ones that sued Mark Zuckerberg over who really founded Facebook.com - are betting heavily on Bitcoins. They say it is better than gold and have their own exchange platform.The value of a Bitcoin is a rollercoaster. Bitcoins are a popular currency for criminals as they are anonymous and easy to transfer across the world.Recent spikes have also been attributed to India’s demonetisation policy as well as China’s crackdown on corruption as it is a way to hide your money.Falls in value have been attributed to the theft of bitcoins, fraud committed by bitcoin exchanges (MtGox) and the closure of a number of Bitcoin exchanges (Cointrader, CoinDesk, MonetaGo, Harborly, Crypto-Trader, etc).Regardless of the above mentioned unpredictable factors which are driving the value of a Bitcoin up or down without notice, the lack of transparency makes it very hard to determine what is going on with the virtual currency and whether it is a bubble or not.If you look at the graph in the image, it is easy to image winning bigly and losing bigly.Bitcoins are too much of a lottery and I wouldn’t recommend investing (or rather gambling) with the virtual currency.Mark Reijman is co-founder and managing director of https://www.comparehero.my/ , dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, loans and broadband plans in Malaysia.

Source: The Star February 04, 2017 13:41 UTC