The rise of bitcoin mania
Even grandmas want in on the cryptocurrency as the value of it skyrockets and interest grows.
Ricardo Medrano bought into the latest investing sensation just 12 months ago, but already the 42-year-old Melbourne marketing manager has made enough money to retire.
“When it first came on to the scene I never invested. It was too new and I didn’t pay much attention,” he tells T he Australian. “This year, only during the last few months, I’ve learned more and more about the technology and decided to invest in bitcoin.”
The freelance marketer, who now spends some of this time working from Melbourne’s Blockchain Centre, home to a growing number of bitcoin enthusiasts, says the digital currency’s meteoric rise means he can stop working.
Medrano won’t disclose the exact figure but says if he cashed out his bitcoin today, he’d be able to retire. “I’m going to hold most of them,” he says. “I believe that one day I can buy a vineyard, or a house, in the near future. So I’m holding. I’m not in a rush.”
Rita Scott’s grandson convinced her last month to buy into bitcoin. “I thought it was a big coin,” the 70-year-old says. “I didn’t even know what it was … a piece of coin? Why would I invest in a piece of coin?”
With a few hundred dollars of her money invested in it, Scott quickly caught on and started checking the price several times a day, even while playing poker at a casino in her home town, Las Vegas.
Late on Monday, as the price approached $US10,000 ($13,185) for the first time, her grandson, Anthony Santa, sold the bitcoin he and his grandmother held, netting what he says is a gain of about 45 per cent in just a few weeks.
That may prove prescient. While bitcoin just hours later topped the $US11,000 mark — reaching its highest level in its nine-year history — the virtual currency tumbled more than $US2000 just hours later as several exchanges struggled to handle surging volume. It rallied again later to close at $US10,214.
“Believe me, I didn’t have this much fun with T. Rowe Price,” says Scott, a retired secretary and taxi driver, referring to her mutual fund investments.
Bitcoin, a stateless digital currency that shares some investment characteristics with gold, has captured the imagination of investors.
As its value has doubled since mid-October and risen more than tenfold this year, the currency has transformed from a curiosity among techies to a hot topic for mainstream investors.
But the speed of its ascent has some warning it will end in tears. And, as yesterday’s quick reversal shows, bitcoin is extremely volatile — the currency has declined more than 50 per cent on eight occasions since 2011. Another source of concern: the latest move higher in bitcoin’s price is drawing in more individual investors.
“They see the price break $US10,000, obviously they see the news, they hop on their app and go ahead and buy bitcoin,” says Bobby Cho, head of over-the-counter trading at Cumberland, the cryptocurrency unit of DRW, a high-speed trading firm in Chicago.
Paul Joseph Spelce, a 22-year-old graduate student in New York, was one of the newcomers who bought in. Over Thanksgiving dinner with friends last week, the conversation was dominated by talk of bitcoin.
“Even this woman who didn’t have a computer at home couldn’t stop talking about how bitcoin was going to reach $US10,000 soon,” Spelce says.
After stewing about it over the weekend, he pulled an all-nighter poring over articles about bitcoin’s rise. He repeatedly searched the price of bitcoin on Google.
About 6am on Wednesday he placed an order to buy $US50 worth of bitcoin on Coinbase. Hours later, his position was already up about 11 per cent. Then it was down 9 per cent.
“When I clicked, it was just one of those feelings. I’d finally read enough, finally felt confident enough to do it,” Spelce says. “My friends all think I’m crazy.”
Friends of Tony Horsely in Atlanta have been more understanding. The 78-year-old investor began investing in bitcoin during the northern summer just to add some “spice” to his portfolio. Soon he moved about 5 per cent of his portfolio in the coin and an exchange-traded fund based on the currency.
He started writing a periodic, informal note to about 30 friends, in which he talks about bitcoin’s price dynamics and the logistics of buying it. “I’m late to the game,” he says, “but I’m enjoying it.”
While some of his friends have expressed doubts, Horsely says about a half-dozen joined him in buying. Meanwhile, he has accelerated his purchases, picking up more bitcoin on November 24, and then on Wednesday morning.
The fervour for bitcoin has been global. Tom Reaney, owner of the Burger Bear restaurant in London, started accepting bitcoin about five years ago after a customer asked to pay for some bacon jam with the virtual currency.
Recently, nearly as many people ask Reaney about investing in bitcoin as using it to pay for a meal. “It’s quite lucrative,” says Reaney, who owns seven bitcoin. Even though he views a drop in price as inevitable, he says: “I don’t want to pull my money out because it keeps going up.”
But bitcoin’s volatility is making many conservative investors, some of whom work in finance, hesitant. At the Asia Securities Industry & Financial Markets Association’s annual conference in Hong Kong this week, only two of about 150 professional investors raised their hands when asked if they had invested during a session on cryptocurrencies.
“It’s incredible that we’re (seeing this) at a finance event, but it’s actually very common,” says Henri Arslanian, PricewaterhouseCooper’s China and Hong Kong leader for fintech.
Arslanian, who also teaches a fintech course at the University of Hong Kong, says when he asks his students that same question, usually about 30 per cent of them say they own virtual currencies.
He says in the past few weeks he has received so many requests on how to trade cryptocurrencies that he has put together “a template response”.
While individual investors may be piling into bitcoin, some are cashing out quickly, potentially adding to the volatility.
Nathan Hoyle, a 27-year-old Londoner training to be a navy pilot, bought £1000 worth of bitcoin in September as a “curiosity”, he says. When he saw the rally picking up steam, he decided he would take his profit and run if it got close to $US10,000 from the $US3500 level where he bought it.
When the price rose above $US9800 on Wednesday, that was close enough. He said he sold his position, booking a £1780 ($3157) profit. “Now I’ll wait for another price crash and buy again,” Hoyle says.
As for Australians looking to dip into the heady world of digital currency, Medrano says they should be aware they can start investing as little as they want.
“You can divide it into smaller numbers, like anything,” he says.
“So whether it’s 100 bucks or 10 bucks, you can invest even a little bit and use that in the future to buy things. I’ve bought coffee with bitcoin before, and I know someone is selling their house for bitcoin.”
Many investors are bullish about bitcoin’s prospects, and so is Medrano, who says now that the cryptocurrency has passed the $US10,000 mark, there’s no reason it can’t go on to hit $US20,000 or even more.
“I think I’ll buy more,” he says. “And I don’t believe it’s a bubble. If you compare the value of Apple, that’s $US700 billion. Bitcoin’s market cap is $US150bn. I know that looks like a lot of money but when you compare it to the stockmarket or companies like Apple, it still doesn’t compare and it’s a small amount compared to them.”
The Wall Street Journal
Additional Reporting: Akane Otani
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