Bitcoin price’s crazy ride reminds investors why it’s a gamble

Bitcoin has harsh critics and fanatical fans, and cryptocurrency remains a mystery to most. Here’s how to handle the rollercoaster.

Bitcoin – fresh from bouncing back to record highs – plunged 11 per cent last week in a sharp reminder of how it and other cryptocurrencies remain a risky rollercoaster ride.

With new kid on the crypto block Shiba Inu coin climbing 1000 per cent in October, financial specialists warn that people buying into the digital currency sector should treat it as a casino.

They say the movements of cryptocurrencies are largely a mystery, but many have climbed recently amid the launch of crypto-focused exchange traded funds and some investors seeing bitcoin as “digital gold” to protect them against rising inflation.

Bitcoin’s 50 per cent fall between April and August was not as steep as many had expected, and shallower than previous plunges, and now there are forecasts that its price could multiply.

A recent report by Europe’s Forex Suggest predicted the value of a bitcoin – currently about $81,000 – would jump six-fold by 2024, while number two crypto Ethereum would rise almost ten-fold.

Tribeca Financial CEO Ryan Watson said bitcoin “really is the great unknown”.

“It’s not bad, it’s not good – it’s just high risk, and for the potential upside there’s significant downside,” Mr Watson said.

Bitcoin is used partly as a currency but mainly for speculative investing. Picture: Marco Bello

“I don’t think we are more informed now than we were six months ago.”

IG Markets analyst Kyle Rodda said bitcoin was driven by speculative money flows, and traded on its own news and momentum.

“In the short term it’s a very popular gambling chip – every cryptocurrency is,” Mr Rodda said.

“You chuck your money in and hopefully it comes back with twice the amount.

“Know why you are buying it. If you’re buying on the assumption that everything’s going up, it’s like walking into a casino. Expect there’s a chance to lose your money.”

People who criticise crypto are often attacked by those who see it as the future of money, although its use as a transaction tool is minuscule compared with the speculative trading that has pushed the combined value of digital currencies above $3.5 trillion.

The introduction of exchange traded funds (ETFs) to hold cryptocurrency investments is expected to make bitcoin more mainstream, and the chief operating officer of crypto investment app Bamboo, Tracey Plowman, said those who bought it early would reap the rewards.

“The wealth that will be generated from Bitcoin and crypto – particularly for the early adopters of these digital assets – represents a seismic change in how someone can grow their fortune,” she said.

Research released this month by global cryptocurrency platform Luno found that 15 per cent of Australians had bought cryptocurrency in the past two years, and the most common reason for investing was to save for a house deposit.

“Price volatility and the lack of government regulation are often assumed to be the main reasons why people don’t take the leap into crypto but in fact people just don’t feel they understand it enough to commit,” said Luno country manager Byron Goldberg.

Originally published as Bitcoin price’s crazy ride reminds investors why it’s a gamble