What you must know before buying Bitcoin

 

Bitcoin is booming again, just as it was three years ago, firing up the financial juices of those willing to ride the cryptocurrency rollercoaster.

The digital currency last week surged past record highs first reached in December 2017, then continued climbing above $US20,000 ($26,000). A year ago one Bitcoin was worth US$7000, and five years ago it was just $US460.

However, many people are unsure about buying Bitcoin. Here are some arguments for and against making the move.

 

POSITIVES

There is a limited supply of Bitcoins, which are "mined" by complex computer processes. Only 21 million can be created and it's already passed 18.5 million.

Cryptocurrency exchange Binance Australia's CEO, Jeff Yew, says increased adoption of Bitcoin by big business will result in decreasing supply and increasing demand.

"Bitcoin is considered the new digital gold and hedges against inflation," he says.

 

"It is considered both a long-term store of value as well as a digital currency.

"Recent studies have shown that a small exposure to Bitcoin has proven to reduce volatility of investment portfolios due to its uncorrelated nature to other asset classes."

Axi chief global market strategist Stephen Innes says COVID-19 accelerated the speed of digitalisation in finance.

"The view now is that Bitcoin's time has finally arrived," he says.

CMC Markets chief market strategist Michael McCarthy says Bitcoin's standing in the finance world has increased.

"Major fund managers are edging their way into the Bitcoin market - it's now traded on a regulated exchange in Chicago," he says.

CMC’s Michael McCarthy says Bitcoin is not for the faint-hearted. Picture: Tim Hunter.
CMC’s Michael McCarthy says Bitcoin is not for the faint-hearted. Picture: Tim Hunter.

NEGATIVES

Trying to time the cryptocurrency market is almost impossible.

Central banks around the world are expected to create their own digital currencies rather than letting Bitcoin take over.

And cryptocurrencies are not like shares in companies that earn profits or gold that's turned into jewellery and other uses.

"It's high volatility - if you have a bit of a heart issue you might want to stay away," McCarthy says.

He says Bitcoin's value has multiplied five times this year. "That sort of move means it's very vulnerable to corrective actions," McCarthy says.

"Investors should be prepared to lose everything they put in."

AMP Capital head of investment strategy Shane Oliver says Bitcoin has "extreme volatility" but could have more upside.

"The $50 in my wallet still strikes me as a far more reliable currency," he says.

Originally published as What you must know before buying Bitcoin