Bitcoin continues to attract interest as an investment opportunity; the fact that the currency is up 396% year-to-date highlights the potential gains from dipping into the cryptocurrency.
These types of returns are spectacular, however, they also come with a good dose of risk. To date, I still cannot grasp what makes the Bitcoin heartbeat tick, which makes forecasting or providing any type of advice unreliable at best.
In addition, the currency is subject to an onslaught of regulations from various corners. And in the investment universe nothing comes close to regulation for causing uncertainty. Add to this the fact that any regulation is being communicated in the last minute, and the market has no way to adapt expectations before events happen.
The result cannot be other than: volatility, flash sell-offs and abnormal price movements. A chance that some hacker can wipe out your holdings, closes the door on comparison with most other financial investments.
The third quarter has been one of the most eventful in bitcoin's history. Bitcoin is up over 74% in the September quarter, with a shifting landscape in regulation and developments in the underlying technology which took place in the last three months.
Bitcoin was losing some attractiveness as record-high transaction times resulted from on the network. To solve that, the amount of data that could be processed in one transaction needed to increase. But the community was divided on how to solve this.
This resulted in a "fork" earlier this year that split bitcoin in two. Bitcoin remained, but a new cryptocurrency called ‘bitcoin cash’ was created. On the core bitcoin network, an upgrade known as SegWit2X (don’t ask me what it means) was implemented, which would help increase the transaction speed. Bitcoin's market cap is about 10 times that of bitcoin cash. Since it started trading at the beginning of August, bitcoin cash has risen to nearly $900 before falling to current levels of around $402.
China was once the dominant driver of the bitcoin price. But regulators in the country have been cracking down on the cryptocurrency, banning so-called initial coin offerings (ICOs) where companies raise money through cryptocurrencies.
China's major bitcoin exchanges OKCoin, Huobi and BTCChina have halted trading for customers on the mainland. At the start of the quarter, Chinese yuan accounted for around 17% of bitcoin trade globally. By the end of the quarter, it was less than 3%.
Meanwhile, Japan has been more open to cryptocurrencies. Regulators there legalised bitcoin and major retailers have begun accepting it as payments. And last week, Japan's Financial Services Agency officially recognised 11 companies as registered cryptocurrency exchange operators. In addition, major Japanese banks are looking into creating their own digital currency called the J-Coin, with backing from major institutions. Thus, it seems that China’s loss has become Japan’s gain.
There is no clear answer to the question on whether Bitcoin is a worthwhile investment. The balance between risk and return seems to exist, but the extremities within which risk and return effectively do exist are too wide for any comparison with other ‘normal’ investments. In my opinion, joining the Bitcoin club is a personal choice that, with patience, may render fruit beyond expectations. But there is also a chance of waking up to find a big hole where the day before you had a tree full of ripe fruit.
Disclaimer:
This article was issued by Antoine Briffa, investment manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.