7 reasons why I wouldn’t touch it

Imust have been asked about Bitcoin more times than anything else since the dotcom bubble. I have a reasonable tolerance for risk and I’m happy to make an investment into a fledgling company if I think it’s going to blossom or it has a great concept, service or product.

But I can’t reconcile cryptocurrencies with “investing”.

And when something doesn’t make sense and you’re managing hundreds of millions of dollars on other people’s money, you’ve got to be even more sceptical about what you deem as investment grade. And Bitcoin isn’t even close!

In fact, the words “scam”, “bubble” and “dodgy” have all been regularly used to describe the crypto mania that is spreading across Australia, as we have one of the highest Google search rates for Bitcoin.

Tony Davison, a colleague at Henderson Maxwell, shares his sentiments about the cryptocurrency without a sense of FOMO: “Absolutely, definitively the worst scam ever perpetrated.” Hmm, don’t hold back, Tony! I have seven major issues with cryptocurrencies:

1. Regulation. There isn’t any!

2. Exchanges don’t operate efficiently and they’re coming and going like nobody’s business, taking speculators’ cash with them and charging high fees.

3. Practical use. You can’t use it for practical purchases unless you pay ridiculously high fees relative to the purchase amount. But no one’s using it anyway, so why bother?

4. Anonymity. The creators and the many holders and purchasers of Bitcoin and other currencies are anonymous and this opens itself up to black-market usage.

5. Volatility and liquidity. The volatility is phenomenal lately, with 20% movements in a day. I know you’ll argue that the price has risen 20-fold in six months but it’s purely speculation. It also lacks liquidity, meaning huge swings in price will be experienced.

6. Hackers. Being computer-generated and unregulated, the chance of being hacked is high and security is a major concern.

7. Inflation. Like a Zimbabwean currency, the level of inflation has rendered it useless and untrustworthy in the near term.

Now, Tony and I could be proven terribly wrong if governments step in and regulate the currency and exchanges, and you might make a bomb in the near term, but I’m a long way from investing my clients’ money in this highly speculative bubble and I certainly won’t recommend it!

Sam Henderson is CEO and senior financial adviser at Henderson Maxwell and can be seen as host of Foxtel’s Sky News Business program Your Money Your Call.