Bitcoin’s stellar price rise: sorry if I’ve just ruined it

Breaking bitcoin was not my intention, but history shows this investment move can have a big impact on asset values.

I apologise to the cryptocurrency community if what I’ve just done will send bitcoin and its friends on a painful downward spiral.

The world’s biggest digital currency has surged almost seven-fold in a year, while many of its smaller cousins have climbed even more as these coins-created-in-the-cloud attract interest from everywhere.

But when boring mainstream investors like me start buying in, does it signal that the end of this latest surge is coming?

Yep, I’ve jumped on the Bitcoin bandwagon. Along with millions of others, including giant US investment companies that previously called cryptocurrencies scams and now own some – giving it recognition that its early adopters craved.

Physical imitations of bitcoin give us an image of something that exists solely in the cloud. Picture: Ozan Kose/AFP

Financial advisers are being asked by a sizeable chunk their clients about buying Bitcoin or other cryptocurrencies. Others are skipping advice altogether and signing up with one of several crypto exchanges available to Aussies.

Australia’s biggest exchange, Coinspot, recently passed one million clients – that’s a heck of a lot of speculators. And cryptocurrencies are certainly speculative right now, rather than traditional investments that generate income or produce something.

My recent crypto purchases were partly because I like to own a stake in investments I write about, partly because my wife asked me about it and I don’t want an “I told you so” later on, and partly because of a fear of missing out on future crazy price rises. The horse may have bolted, but what if it hasn’t?

It wasn’t a big purchase – below 1 per cent of my total super and investment portfolios.

Most experienced crypto investors will tell you not to bet your house on it, and that’s a good lesson: the extreme volatility of cryptocurrency means you could lose three quarters of your money fast.

Some of the world’s biggest crypto backers believe an 80 per cent fall is coming at some point in the next year or so. They say it’s part of Bitcoin’s four-year cycle that’s related to the halving of rewards for mining Bitcoin on powerful computers to expand its network.

The bitcoin bubble will burst before it bounces back again, but timing is always tricky.

The big question is whether that fall comes within weeks, or whether it surges from current levels near $70,000 to more than $200,000 before heading south again.

I’m comfortable with losing 80 per cent of my crypto investments in a short-term plunge. And if you’re thinking of getting in, you should feel the same way.

I don’t expect crypto to replace traditional currencies because government central banks will create their own digital currencies.

However, breathtaking price rises will continue on the digital currency rollercoaster, creating billionaires as well as hardluck stories. Like the bloke who paid 10,000 bitcoins for two pizzas just over a decade ago – a sum now worth around $700 million. Or the chap who forgot the password to access about half a billion bucks worth of Bitcoin he owns but can’t use.

Buying cryptocurrencies is simple and fast, and an account can be opened in a few minutes.

But don’t take the plunge if you can’t handle the potential pain. And sorry if I’m a cause of that pain.