Cash­ing in on Bit­coins

Bit­coin, the world’s first crypto-cur­rency, has de­liv­ered spec­tac­u­lar fi­nan­cial gains but faces ris­ing pres­sure amid gov­ern­n­ment crack­downs and fears the bub­ble may soon burst, as per­sonal fi­nance writer AN­THONY KEANE re­ports

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BIT­COIN, the dig­i­tal cur­rency that has de­liv­ered spec­tac­u­lar fi­nan­cial gains, faces ris­ing pres­sure amid gov­ern­ment crack­downs, a surge of copy­cats and fears that its bub­ble will soon burst.

The world’s first crypto-cur­rency – which is cre­ated on com­put­ers and is not backed by any as­sets – has surged in value from $100 to more than $5000 since 2012, with its tra­jec­tory marked by wild price swings in­clud­ing a 20 per cent dip dur­ing Septem­ber.

Its rapid rise has led to the cre­ation of hun­dreds of other dig­i­tal cur­ren­cies, prompt­ing calls for greater reg­u­la­tion, scam warn­ings and con­cerns that any­one try­ing to buy into this sec­tor to­day risks losing their money.

Bit­coin sup­port­ers say its ben­e­fits in­clude that it is a global dig­i­tal cur­rency in­de­pen­dent of any gov­ern­ment, can be trans­ferred any­where im­me­di­ately, does not re­quire mid­dle­men such as banks, and has ex­tremely low trans­ac­tion fees.

All trans­ac­tions are kept on a pub­lic log but peo­ple’s per­sonal in­for­ma­tion is hid­den.

Gov­ern­ments in Aus­tralia and Ja­pan are in­tro­duc­ing laws to reg­u­late dig­i­tal cur­ren­cies, while China an­nounced a ban on Bit­coin ex­changes this month.

Other coun­tries are tak­ing sep­a­rate ac­tion.

But still the price surge con­tin­ues.

Yes­ter­day bit­coin was trad­ing around $US4200 ($5400) – a handy gain for peo­ple who bought one in 2010, a year after it was formed, when it traded for just 6c.

In­vest­ment spe­cial­ists liken bit­coin to the dot­com boom and sub­se­quent col­lapse, but say the tech­nol­ogy be­hind it – known as blockchain or shared pub­lic ledger – holds great prom­ise.

AMP Cap­i­tal chief econ­o­mist and head of in­vest­ment strat­egy Shane Oliver said regulators were tak­ing a closer look at crypto-cur­ren­cies as new ones ap­peared ev­ery month.

“It’s like the Wild West in America, when ev­ery bank in America was print­ing its own cur­rency,” he said. “There’s a de­gree of that go­ing on here but it’s not banks – it’s peo­ple in cy­berspace cre­at­ing their own cur­rency.”

Bail­lieu Holst chief econ­o­mist Dar­ryl Gob­bett said bit­coin’s price rose “be­cause of its scarcity value”.

“The num­ber of Bit­coins that can ever be pro­duced is fixed (at 21 mil­lion, ac­cord­ing to its rules) but other cryp­tocur­ren­cies are be­ing cre­ated,” he said.

“The types of things that peo­ple might buy Bit­coin for – mak­ing trans­ac­tions that they don’t want gov­ern­ments to see – could be done by an in­creas- ing amount of other cryp­tocur­ren­cies. Cen­tral banks are look­ing to cre­ate a dig­i­tal form of cash. Once that gets go­ing it could well be that the role that Bit­coin is play­ing by be­ing in­de­pen­dent of banks and gov­ern­ments may be by­passed.”

The Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion warned this week about the dan­gers of ini­tial coin of­fer­ings, where dig­i­tal cur­ren­cies raised money for blockchain­re­lated projects.

“ICOs are highly spec­u­la­tive in­vest­ments, are mostly un­reg­u­lated and the chance of losing your in­vest­ment is high,” ASIC Com­mis­sioner John Price said. “Con­sumers should un­der­stand the risks in­volved, in­clud­ing the po­ten­tial for th­ese prod­ucts to be scams.”

Wealth Within chief an­a­lyst Dale Gill­ham said the rise of dig­i­tal cur­ren­cies was “just an­other bub­ble, and for the most part those in­vest­ing in it are not old enough to re­mem­ber the tech boom and bust of the late ’90s”.

“Peo­ple have this nat­u­ral gam­bling men­tal­ity. They are try­ing to find the next big win,” he said.

Mr Gill­ham said cryp­tocur­ren­cies were in a pe­riod of “ram­pant spec­u­la­tion”, which sug­gested the bub­ble was about to pop. The big end of town is stay­ing away from it.

“If there was a lot of money to be made, the pro­fes­sion­als would al­ready be there,” he said.

“One of the things that wor­ries me is it’s com­pletely un­reg­u­lated. We need to reg­u­late it for our own safety.

“If you want to gam­ble, bet $1000 on it and see what hap­pens, but be pre­pared to lose it.

“There are over 900 cryp­tocur­ren­cies and there are def­i­nitely fake ones.

“Stay with the big ones, how­ever even they should be treated as pure gam­bling.”

MONEY BUSI­NESS: A man walks out of a shop dis­play­ing a Bit­coin sign dur­ing the open­ing cer­e­mony of the first Bit­coin re­tail shop in Hong Kong, in 2014 and, in­set, rolls of shiny bit­coins are mainly sou­venirs made for en­thu­si­asts.

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