All I want for Christmas is bitcoin

GIVE KIDS SOMETHING TO THINK ABOUT It’s a valuable investment lesson, regardless of whether or not it’s a bubble that will burst.

In the countdown to December 25, parents are searching for the best presents.

In the countdown to Christmas, parents are searching for the best presents to give their children. How about also giving them some financial education and stuffing a bit of bitcoin into their stockings?

It’s currently trendy, and while a bit of bitcoin may not be as fun to unwrap as an iPhone, it’s still something to tell their friends about. And, it has potentially much longer-term benefits.

It works as an investment lesson regardless of what happens. Whether bitcoin is a bubble that bursts or it turns out to be the basis of the future digital economy, there’s something to be learnt. With bitcoin up over 600% in dollars this year, there’s a lot of excitement about its potential. Its gain in rands has been ever bigger. It’s currently trading at over R150 000, having started 2017 at a little under R14 000.

Bitcoin bulls believe 2018 will be an even better year for cryptocurrencies and, as they become more mainstream, demand will keep growing.

They believe the potential for increased oversight and regulation won’t hurt prices, but actually encourage big institutional investors who have thus far stayed out of an unregulated instrument.

If cryptocurrency-tracking exchange-traded funds (ETFs) are launched in 2018, major financial institutions could join the party.

In this scenario, bitcoin’s price continues to rise, and if you hold it for the long term you could make a lot of money. If so, it’s a great investment lesson for any child – particularly with an asset as volatile as bitcoin.

Being able to hold onto something and see it appreciate over time, despite short-term price fluctuations, is a key attribute for any successful investor.

However, there are few serious financial commentators who believe bitcoin is not in some sort of bubble. The price rise is driven almost entirely by sentiment, with very little fundamental underpin; history tells us to expect this to end in tears.

In the last week two Nobel prize winners added their voices to the chorus of concern about cryptocurrencies.

Joseph Stiglitz and Robert Shiller both expect a crash, although it’s impossible to say when it’ll occur.

If you buy some bitcoin for your children, be prepared for this possibility. If it happens, however, the investment lesson is no less valuable. Losing money is often a better teacher than making it.

There are good financial lessons worth learning early in life: nothing appreciates rapidly forever; don’t invest in something you don’t understand; sentiment can be horribly misplaced; and diversify your risk. A bitcoin crash would bring all of those to the fore.

History tells us to expect this to end in tears.