Should I buy some bitcoin now?

I'm being asked this a lot as the value of bitcoin and other cryptocurrencies have increased ten-fold in the past few weeks.  Good for those who have some.  Bemusing for those who don't.  There are a range of factors driving the rise in cryptocurrency prices, particularly the craze for Initial Coin Offering (ICOs).  An ICO is an unregulated means to raise funds for a new cryptocurrency venture, and the recent ICO by Gnosis sparking great interest at the start of the month.  There's also underperforming Chinese markets and increased demand for the cryptocurrency in a number of Asian countries, particularly Japan where bitcoin is semi-legitimised.

For a full background briefing on what's going on, I can't recommend more highly than watching this 19 minute interview with Izabella Kaminska, our good friend at FT Alphaville who will be starring at the Financial Services Club on July 4.

It’s funny.   I’ve never been convinced of the case for bitcoin, even with the price bursting over $2,000 in the last week.  I guess it’s because, as a statist, I don’t like it.  I don’t like the idea of a democratised currency that has no government controls, because I just don’t see how that can work long-term.  It’s probably just me being a grumpy old man, but if money and banking were invented by governments for control, then do you really think they’re going to let bitcoin fly?

The bitcoinistas tell me I’m stupid, and that it’s already out there.  They tell me that you can’t regulate the internet, and therefore you can’t regulate bitcoin. I beg to disagree as plenty of what’s on the internet is regulated, whether we like it or not.  Just look at China’s version of Wikipedia or America’s bias towards national news, and you’ll see what I mean.  Nothing is truly by-passing government unless it’s on the Dark Web, in which case it’s probably illegal and gets more government scrutiny than anything else.

However, I am convinced by Ethereum.  Ethereum is getting a lot of traction since the announcement of the Enterprise Ethereum Alliance and, unlike bitcoin, Ethereum has corporate and bank backing.  That’s probably why bitcoinistas don’t like it.  However, it does mean that what bitcoin is to the Dark Web, Ethereum is to the Light Web.  Hence, a good reason to buy some Ether, the digital currency that powers the Ethereum blockchain.

If you haven’t noticed, Ether was trading at $8 per coin at the start of the year.  Today, it’s breaking $200 per coin.  If Ether does become the institutional digital currency for the future blockchain ledgers, it’ll be trading at $200,000 per coin one day, based upon the wild optimists view of the world.

This is why I irritated many of the bitcoinistas by saying, whatever you do, don’t hold the currency.  They didn’t like it as they were missing my context.  My context is that bitcoin long-term could well be a busted flush.  It’s going to get regulated by hook or by crook and, when it does, the whole reason why bitcoinistas like it – it’s money without government! – goes away.  Mass sell-off and big trough of gloom.

Ethereum meantime, backed by Microsoft, should blossom long-term.  It’s liked by corporates, banks, technologists and more and has real momentum.  Even with it’s forks, it’s not forking off.

That’s why I’m long on Ether and short on bitcoin.  I day trade bitcoins and hold Ether. You do what you want, but if you’re feeling like you’re missing out on this cryptocurrency boom of the past few weeks, get in there and buy some before it’s too late.  If you do however, bear in mind the huge volatility of the market.  Just in the last 24 hours bitcoins have been trading at a peak of $2,791 before dropping $300.  Even so, at Thursday's record, bitcoin had gained more than 45 percent in a week and more than 180 percent this year.

One bright spark has estimated that bitcoins will be worth $500,000 each by 2020.  Another says that Ether will overtake bitcoin as the currency of trust and focus.  If either bright spark is telling the truth, you’re in the money.  Even if both are wrong, you’ll still be in the money as both coins are going to froth more this year.

Then everyone asks: where do I buy them?

There are plenty of exchanges you could use, with the most popular being Karken and Coinbase.  Bear in mind that you’re hearing this long before the general populous, I guarantee you’re going to make a mint.  Not a Royal Mint, but a handsome return.  If you don’t, well, investments can go down as well as up.