Five questions about: The Bitcoin bubble

 

This is the virtual currency, isn't it. Can I make a mint from it?

Who knows. There's a growing school of thought that Bitcoin is just the latest Gold, Rush, Tulip Fever or South Sea Bubble.

Didn't a lot of people lose fortunes in those events?

They sure did. However a few people – chiefly those who got in right at the beginning – made a fortune.

Are you suggesting that Bitcoin will go the same way?

No. But here are some facts. Bitcoin was launched in 2008 by an anonymous group of software developers. They are created by an online process known as 'mining'. Those who choose to 'mine' the currency do so by solving cryptographic puzzles in order to get new Bitcoins and build up their collection. The number of Bitcoins that can be found is apparently designed to tail off so the total issued will be limited to 21m. So far some 12m are believed to have been issued.

That all sounds perfectly reasonable. Where do I get some?

You can buy and sell them through various online platforms. The price fluctuates according to demand and sentiment and was lower than $200 (£122) as recently as July. But Bitcoin rocketed in recent months to end up more than $1,200, even higher than the price of gold.

That sounds like just the beginning of a major boom, doesn't it?

That's extremely unlikely. On Thursday the virtual currency encountered a major problem when powerful Chinese regulators banned financial institutions from using it. That sent the currency into tailspin and it plummeted more than 20 per cent in a day. It slumped from $1,240 to $870 on the Bitcoin trading exchange MtGox. Meanwhile former US Federal Reserve chairman Alan Greenspan has described Bitcoin as a "bubble" with no "intrinsic value". It's something to be wary of, at least for now.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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