Bitcoin – Greed Rarely Ends Well

I am literally flabbergasted at the way people are parting with their hard earned money ‘investing’ in an asset (or is it a commodity?) when they really have no idea what it is, how it works, what governs the price and how it is regulated (or not, as the case may be). Welcome to Bitcoin.

 

Much of this euphoria has been brought about by clever people using sharp marketing to draw people in. I myself had a text message last week promising that someone (quite who I don’t know) would pay me 4.2% per month without any risk at all by ‘investing’ in Bitcoins. What’s not to like!

 

What is behind the euphoria? I understand perfectly well why ‘alternative’ currencies could be good for society. But I also understand that these kinds of unregulated markets would be ideal ways for criminals to legitimise their ill-gotten gains. The problem is, a huge gain in the Bitcoin value this year has seen the subject front and centre of media – especially social media. And that entices people. A lot of people. The problem is, of course, that speculative bubbles generally burst and no one knows exactly when they’ll pop. But they do. Always.

 

As I sit here writing this, Bitcoin is up over 11% today and its price now sits 20 times higher than it was just a year ago. This kind of euphoric investing rarely ends well. My view is that the smart people are already out of this market and have moved on. The ordinary man in the street who bets his life savings on the price continuing to go up will be the one who really suffers.  

  

As legendary investor Warren Buffet says, investors should be “fearful when others are being greedy” and that really has some resonance in the context of Bitcoin.

 

Greed rarely ends well.