Would you recommend bitcoin to a client? – Harvey Jones

Bitcoin

It is the most exciting investment of the decade far, but few IFAs would recommend it.

It has thrashed every rival investment and turned early investors into billionaires, but advisers turn their noses up at it.

I am talking about bitcoin, the world’s best-known crypto-currency, whose value has risen fivefold this year alone amid massive volatility.

Bitcoin was launched by anonymous hackers in 2009 and has soared from just a few US cents to thousands of dollars.

Seven years ago, an early bitcoin user spent 10,000 bitcoin buying two pizzas. Today, those same coins would buy an incredible $66 million worth of pizza.

Welcome to the world’s biggest bubble.

Bit of fun
I should declare an interest here: I am the proud owner of two whole bitcoins.

I bought them earlier this year (after plenty of online faffing) for around £2,000. Last week, their value peaked at around £11,450. Two days later, they were worth £9,750.

Dramatic swings like these are par for the course, as bitcoin can move 20% in a single day.

Coining it in
Plenty of your clients are dreaming about bitcoin, and no doubt kicking themselves for failing to put money into it. They could be millionaires, if they had acted fast enough.

That is why bubbles are so dangerous. They exaggerate the two strongest investor emotions: fear and greed.

Personally, I bought bitcoin mostly out of fear that it would fly even higher, and I would kick myself for missing out. It was a kind of mental health insurance policy.

Bubble trouble
Many in the financial services industry are reassuring themselves that this is the South Sea bubble, tulip mania and the dot.com frenzy rolled into one. This is a sign of how uncomfortable it is making them feel.

JP Morgan chief executive officer Jamie Dimon reflected this unease when he labelled bitcoin a ‘fraud’ and said he would fire any trader who invested in it.

Which is a thoroughly respectable position, except that so far it is a losing position.

At the time, in mid-September, one coin was valued at £3,000. Within a month it topped £5,500. Any JP Morgan Chase raider at risk of being fired could plead superlative outperformance in their defence.

They will have trashed every benchmark in the world.

Chain of fools
For those advisers who are interested, there are now ways to invest in bitcoin without the palaver of setting up an online wallet.

Hargreaves Lansdown allows clients to invest in a Swedish-based bitcoin tracker. There is also a bitcoin investment trust, although be doubly warned, this typically trades at a whopping 100% premium to net asset value.

The only reason to buy bitcoin today is as a purely speculative investment. There is space for speculation but only as a tiny part of a well-balanced portfolio, and only for those prepared to lose every penny if something goes wrong.

Most advisers still would not touch it. Most advisers are absolutely right.

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