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What is cryptocurrency, is it worth still investing in and what are the risks involved?


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Here's a sobering thought. If, 10 years ago, you'd decided to take a punt on a new breed of online-only currency by the name of Bitcoin, you could have bought 10 of the shiny new so-called cryptocurrency for less than £10.

At the time of writing, the price of one Bitcoin is now worth £41,202. And it's been higher.

Bitcoin's remarkable rise in value has captured plenty of headlines in recent years
Bitcoin's remarkable rise in value has captured plenty of headlines in recent years

Which would mean your modest investment of some chump change in 2011 would, today, be worth an eye-watering £412,000.

The big question for many now is whether Bitcoin - or the thousands of other cryptocurrencies like it - could still deliver the riches if we invest now?

Not only have we decided to put it to the test - with some remarkably swift results - but we spoke to some experts in the field keen to not only understand just what cryptocurrency is but why an increasing number of Kent's youngsters are taking the plunge in pursuit of future riches.

And we ask whether Bitcoin is still the currency to invest in or, as some suggest, it will simply be the forerunner to another currency still to emerge.

Now, it would be easy here to blind you with in-depth descriptions of the blockchain technology which lurks behind it - or start banging on about the difference between centralised and decentralised currencies - both absolutely essential to the story - but let's not get bogged down just yet.

Bitcoin leads the field - but there are, literally, thousands of others
Bitcoin leads the field - but there are, literally, thousands of others

What you want to know is have you missed the boat - or are some big windfalls still waiting to be claimed?

But first, in the simplest terms, just what is a cryptocurrency?

After all, you can't hold them in your hand, can't use them in Tesco, and you can't pop into your local branch of Bitcoin and ask to speak to the manager about a loan.

In short, it’s a currency which only exists in the online world - a digital currency which, and here's a key reason for its popularity, is not at the whim of political upheaval or stored within the confines of one financial institution. It is a currency whose popularity is entirely in the hands of the people.

It's also extraordinarily secure and the only real threat to your investment is the volatility of its value.

Increasing numbers of younger people are investing in cryptos rather than stocks and shares
Increasing numbers of younger people are investing in cryptos rather than stocks and shares

That is why, increasingly, its being seen far more as a commodity in which to trade, currently, rather than a method with which to buy or sell goods. And, as we’ve seen, those rewards can be enormous.

Business advisors and accountants Kreston Reeves, which has offices in Canterbury, Chatham and Sandwich, says its investments team currently views the whole crypto market as too volatile and simply too high risk to get involved in.

But the firm has at least one intrigued colleague.

Toby Cotton is a business services manager at the firm and admits he's dabbled - personally - in the markets. And at 29, he underlines its growing popularity among the younger age-group.

"It's essentially a bit like gambling,” he says.

Bitcoin - and all the other cryptocurrencies - are online only so you'll never get to hold one...other than virtually
Bitcoin - and all the other cryptocurrencies - are online only so you'll never get to hold one...other than virtually

"Quite a lot of my friends have quite a bit of cryptocurrency - so we're all riding the train. Some have cashed in - others are keeping in to see how they grow. I'm just going for the ride to see what happens.

"I only invest as much as I can afford to lose. If anyone asked I'd just say don't go overboard, anything can change, and also with the main ones in the market you just don't know where it's heading."

He is quick to say he couldn't advise for or against investing - and admits there is a real risk of losing everything invested.

But, and this is what draws so many to it, he knows the potential rewards of backing the right metaphoric virtual horse.

"If someone comes to me and asks if it's a good investment the answer is it depends," he answers in a personal capacity. "There are a lot of alternative investments you can make, but the scale of the gains are brilliant and that's what is enticing people in. It's definitely not too late to invest in it.

"The scale of the gains are brilliant and that's what is enticing people in..."

"I think the one thing I'm finding is that people don't understand cryptocurrency and when they don't understand they're wary of it and a little bit scared of getting involved."

There's been plenty to be anxious of, after all. When they first emerged, the headlines around cryptocurrency were all about this anonymous form of currency being embraced by terrorists and drug dealers buying and selling goodness-knows-what on the dark web.

It has long since broken into the light, catching the attention of many - helped in most part by the likes of Bitcoin's remarkable rise in value.

But there are many who believe it poses an existential threat to traditional currencies like the pound, euro or dollar. That, in an increasingly online world, it will, in one form or another, emerge as the one true global currency.

Hirbod Assa is a senior lecturer in finance and fintech (the fancy abbreviation for the less exciting sounding financial technology) at the Kent Business School, part of the University of Kent.

Hirbod Assa is a senior lecturer in finance and fintech at Kent Business School
Hirbod Assa is a senior lecturer in finance and fintech at Kent Business School

He explains: "It's going to be an evolution. It's very natural when you see everybody now using mobile phones. But 20 or 40 years ago it was a very different world. We've gone from the telegram to the telephone to the mobile phone.

"The trend is towards everything going digital and that includes money.

"I'm not saying it's threatening traditional currencies, but in the end, I see that they're going to replace them eventually. So, in a few years probably, we will still have the pound but it's going to be a crypto pound."

So what, you may ask yourself, is the difference between cryptocurrency and the money you spend online? After all, in this Covid era, our use of coins and notes has shrunk dramatically. Increasingly, our transactions are digital only. So aren't we using a crypto pound, effectively, already?

Well, it's not quite as simple as that. If you have a bank account in the UK then chances are it is with a major high street - or online - bank. It, solely, is responsible for your money. Governed by the Bank of England. And that, in turn, is at the whim of the political situation. Should inflation rocket for some reason, then the pound in your pocket will devalue at pace. In short, our currency is centralised.

Blockchain technology underpins all cryptocurrencies - which can leave many scratching their heads
Blockchain technology underpins all cryptocurrencies - which can leave many scratching their heads

But cryptocurrency is decentralised and global. Which means the moment they are bought and sold the world is made aware of it - using blockchain technology (think of it simply as a huge digital ledger shared and automatically updated around the world) and for many is seen as a safe investment. Others warn it is a risky business.

Which brings us to that all important price.

Cryptocurrency, as mentioned earlier, is seen as much as a commodity to trade as a method of payment. The headlines generated by Bitcoin's growth has accelerated demand, with everyone keen to get on the gravy train.

Investors are buying it like they would shares in an ever-growing company - keen to see their money grow over time.

But its volatility really can hang on the words of the rich and famous. The multi-billionaire Elon Musk - owner of Tesla - has been highly influential in the crypto-sphere. Believed to sit on a Bitcoin haul worth billions of pounds, a tweet he made recently seemingly supporting Dogecoin - a cryptocurrency started as a joke - saw its price soar.

"There’s a good chance that crypto is the future currency of Earth..."

But, just recently, he's warned people to be careful, saying: "People should not invest their life savings in cryptocurrency, to be clear. That’s unwise.

"But if you want to speculate and have some fun - there’s a good chance that crypto is the future currency of Earth. Then it’s like, which one is it going to be? Maybe there will be multiple. But, it’s all speculation at this point.”

However, when he reversed a decision to allow Bitcoin to be used to buy a Tesla car, he single-handedly set its price dropping along with all other cryptos. Such is the fragility of the market.

And don't think, for one moment, Bitcoin is the only coin on which you can make, or indeed lose, a few quid.

While its profile has ensured its price is sky-high, you can still buy some currencies for less than a penny each. If - and that is big if - one of those reach the heady heights of eventually being worth £1 each then your, let's say, £10 investment will have ballooned to £1,000. A healthy £990 profit. Say you pumped £100 in, well you can work out how that investment will have paid off.

To test this theory, I bought into a particular cryptocurrency when the price was around 1p each as it had started to look like it was on the rise. I splashed out the grand total of £20.

Our experiment dabbling in cryptocurrencies saw our holding triple in value within a week - but then tumble
Our experiment dabbling in cryptocurrencies saw our holding triple in value within a week - but then tumble

Within one week, my holding had ballooned to £62.03. A quite remarkable rise of 200%.

Yet, post Elon Musk's comments, it tumbled to £41.90. Granted, still more than doubling our initial outlay but with that troubling feeling it could be in free fall.

It's easy to see, given the potential fast gains, why so many are intrigued. So here's a word of warning.

Susannah Streeter is a former BBC business presenter and now senior investment and markets analyst at financial services giant Hargreaves Lansdown. She explained to KentOnline: "Every week it seems there are new kids in on the crypto block being sold in exchanges where there appear to be few rules and little regulation. There are now thousands of coins and tokens in circulation but their valuation has no reliable basis.

"Many cryptocurrencies and tokens are heralded as being part of the decentralised finance movement, which aims to disrupt current payment systems. Instead of relying on a bank for transactions, trust is placed in computer code logged on a blockchain, for peer-to-peer payments and contracts.

Susannah Streeter of Hargreaves Lansdown. Picture: Hargreaves Lansdown Plc
Susannah Streeter of Hargreaves Lansdown. Picture: Hargreaves Lansdown Plc

"Although blockchain technology is already being used across many industries, the future winners and losers in the future payments world is far from clear cut, with fierce competition amongst new and more established players.

"Much of the demand for these coins and tokens have come from traders hoping to benefit from future price rises rather than using them as a means of exchange. Gains are often being fuelled by frenzied chat across social media with influencers jostling for position to push their favoured coins.

“But like a slot machine, many of the coins being pushed into circulation are very much a speculative bet and investors should only get involved if they have money they can afford to lose.

"Coins or tokens which reward owners, if they hang onto them for longer, and penalise them with fees if they sell, sound fresh alarm bells. Such models appear to be geared towards helping early holders of the currency become wealthy, as others pile in after them, pushing the price up further.

“Volatility is the name of the game in the crypto world, with coins on a rollercoaster ride from week to week and predicting the point at which demand subsides and prices begin to fall is highly difficult, if not impossible.’’

Is it worth a punt investing in cryptocurrencies? There are ample pros and cons
Is it worth a punt investing in cryptocurrencies? There are ample pros and cons

But an interesting trend is that younger people are emerging as big investors - in terms of numbers if not wealth - in the various cryptocurrencies out there.

For them, the online purchasing and awareness is second nature - aided greatly by the fact transactions can all be placed via their phones.

But, and this really can't be emphasised enough, what goes up can also come down.

Adds the University of Kent's Hirbod Assa: "You're exposing yourself to risk, of course you are. But at the moment demand is very high.

"It's because cryptocurrencies haven't reached yet a capacity. Investors just look at it as a new asset. And people see value in buying that because it's in high demand."

Want to see your money grow? Cryptocurrency may - or may not - be the answer
Want to see your money grow? Cryptocurrency may - or may not - be the answer

Not that everyone seems keen to talk about it. Two wealth management firms, with offices in Kent, declined the opportunity to comment on whether they would recommend crypto to its clients.

And when we contacted Maidstone-based cryptocurrency Electroneum, it refused to comment "because of specific guidelines that we have to follow given the current crypto climate in the UK". It declined to elaborate on just what they were.

The Financial Conduct Authority describes cryptoassets as being "considered very high risk, speculative investments" adding "if you invest…you should be prepared to lose all your money".

Which is not the sort of ringing endorsement you'd hope for.

In addition, if you start making big purchases, you can expect HMRC to show an interest - with big profits potentially making you liable for capital gains tax.

Governor of the Bank of England, Andrew Bailey, warns investors should expect to lose "all their money"
Governor of the Bank of England, Andrew Bailey, warns investors should expect to lose "all their money"

So while the potential to make a few quid is there, I will leave you with this sobering comment from the governor of the Bank of England, Andrew Bailey when asked recently about the rise in prices of cryptocurrencies: “They have no intrinsic value.

“I’m going to say this very bluntly again. Buy them only if you’re prepared to lose all your money.”

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