Should you buy bitcoin now?

Digital currency breaks all the investment rules but speculators still flock to it, writes Anthony Keane

WHEN everyone’s talking about the latest investment craze, it usually means you should avoid it.

Bitcoin, the world’s first digital currency, has captured the world’s imagination with stellar growth – particularly this year with its 1700 per cent rise in value.

More astonishing is its climb since 2010, up from just US6c to around $ US17,000 - that’s $ 23,500 Aussie dollars - today.

Bitcoin is a crypto- currency, independent of banks and governments and created by powerful computers making complex mathematical computations, called Bitcoin mining.

Bitcoin’s mysterious creators set a strict rule that only 21 million would ever be created, which limits supply, and we’re already three- quarters there.

Buying bitcoin now breaks most rules of good investment, because:

It is created from nothing, has no solid form apart from some gold- plated souvenirs, and has no assets behind it. I was dumbfounded the other day when I read a bitcoin owner predicting it would rise further because it was only a quarter the value of Apple – you know, that corporate giant that dominates the planet with assets and employees everywhere. People should only invest in what they know. Almost nobody knows exactly how bitcoins are created – they just know it ’s been going up, and pile in. Most of its investors were too young to experience the dotcom collapse of 2000.

Investors should aim to buy low and sell high – the best time to invest is when an asset has dropped in value, not when it’s at a peak.

The tricky part for potential Bitcoin investors is that it ’s continually peaking, creating “what ifs” among people who thought about buying but never did.

I’m one of them. I considered buying bitcoin when I wrote about it just over two months ago, but didn’t, and have since watched it quadruple in value.

If you want to take a punt on Bitcoin you need to understand the risks and be prepared to lose money, because a growing chorus of investment experts say it is a bubble ready to pop.

More dangerous than bitcoin itself are the hundreds of copycat digital currencies that have appeared from nowhere to target speculators. Many will fail.

I’ve received plenty of emails recently promoting Dentacoin – “the new digital coin of dentistry” – but think I’ll pass.

The technology behind Bitcoin – known as blockchain – has a bright future, experts believe, because it allows quick, efficient transactions that remove middlemen such as banks.

It’s such promising technology that central banks around the world are considering creating their own digital currencies, which could compete with bitcoin and possibly crush it.

Nobody knows whether that will happen, how far bitcoin will rise, or what it will be worth. Feel free to take a punt on it, but only if you’re OK about losing your money if it all falls apart.