Bitcoin: will it be a digital asset or just fool’s gold?

IT’S been dubbed the biggest bubble in history, outdoing Tulip Mania, which rocked the Dutch economy in the 17th century.

We are in a Bitcoin boom but will it be followed by Bitcoin bust?

Mystique and confusion surround this digital cryptocurrency, whose price has skyrocketed to $22,000 in Australia and seems to be only heading in one direction.

Investors all over the world are rushing to get their hands on this trendiest slice of so-called money, created by powerful computers making complex mathematical computations called bitcoin “mining”.

But the jury is well and truly out on whether this Bitcoin bonanza is just another “get rich quick”-style scheme that will see those bragging now about their exponential returns end up with their tail between their legs.

It was created by Satoshi Nakamoto – the name used by the unknown person who is believed to have developed this digital currency – and he’s on track to become the world’s first trillionaire.

LIKE A STOCKMARKET

Essendon legend and dual Geelong premiership coach Mark “Bomber” Thompson said Bitcoin had given him purpose in life for the first time since he finished coaching.

“A lot of people think it’s a hoax but there’s a lot of substance to it.

“It’s competitive – you win or lose money and sometimes it’s chaotic and your mind is just going crazy, and I like that.

“It’s like a stockmarket but everyone thinks Bitcoin is the whole thing, when it’s not.”

Asked how much he had invested in Bitcoin, Thompson said: “You don’t have to invest too much for it to go into double-digits, mate – if you pick smartly.”

SPECULATIVE MANIA

But for the average Aussie investor who remains unsure of whether this digital currency craze is sheer madness or the next big thing, it is worth considering the words this week of Reserve Bank of Australia chief Philip Lowe.

The man who oversees the nation’s benchmark interest rates slammed cryptocurrencies including Bitcoin.

“So the current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment,’’ he said.

The nation’s top banker quashed any hopes for Bitcoin to be used for mainstream payments by everyday consumers.

It was too volatile, the number of payments that can be handled was too low, there were governance issues – and the transactional costs in making a payment using bitcoin were too high.

Among experts he is far from alone in this view.

WHAT GOES UP

Commsec’s senior economist Ryan Felsman said people had been caught up in the euphoria surrounding bitcoin.

“It’s a technology that going forward may be adopted as an alternative form of currency and certainly though, on the counter to that, what we are seeing currently is exponential increases in bitcoin outcomes in terms of return,’’ he said.

“It’s speculative and unregulated so investors need to be very cautious about this, particularly those with a low-risk profile. While it’s rising at present it could eventually fall again and it’s very much a momentum trade at the moment.”

But despite cryptocurrencies still being relatively novel in Australia, the taxman is watching closely to ensure it is specifically itemised when tax returns are filed.

An ATO spokesman said it should be treated like any other asset for income tax purposes and would be considered for capital gains tax if profits were made.

LIKE POKEMON GO

Financial services firm Canstar’s general manager of wealth Josh Callaghan describes bitcoin like the Pokeman Go phase, “if you’re not into gaming you still hear about it”.

“There’s a flow of millions and millions of customers coming in and they outnumber the number of people who own the bitcoins. As a result you have way too many buyers than those who are willing to sell and that’s driving the price up.”

He said for those wanting to dabble in it, just a single note would do.

“You can buy as little as $10 worth of Bitcoin if you so desire,’’ Mr Callaghan said.

GET YOUR HANDS ON BITCOIN

This can be as simple as visiting a Bitcoin ATM – almost 3000 are being rolled out across Australia allowing users to buy and sell digital currency. The machines are “two-way”, meaning users can get Bitcoin as well as convert their holdings into legal Australian currency in an instant.