GRASP CRYPTO
From chancers to financiers and tech figureheads, a scroll through your social feeds can make it seem like everyone’s cashing in on crypto. The number of users is estimated at anywhere up to 5.8 million. But before we get to your question, let’s address a common query: what is cryptocurrency, anyway?
Simply put, it’s a digital currency that has no physical form and isn’t regulated by traditional institutions, such as your bank. ‘Cryptocurrencies do not have intrinsic value, which is among the reasons for their incredible volatility,’ says Mohammad Uz-Zaman, a cryptocurrency expert at ADL Estate Planning. ‘Because of this, they are not recognised as legal tender.’
Explain, then, Elon Musk saying
Tesla is ‘most likely’ to start accepting bitcoin as payment for its cars, as well as sinking his own money into dogecoin, a cryptocurrency named after a dog meme from 2013. Crypto’s value is in the blockchain technology that underpins it. Through ‘mining’ – verifying and ordering data blocks – users are rewarded with cryptoassets, which then hold or lose value in the same way that traditional stocks do.
In short, cryptocurrencies are worth something if enough people decide they are. Right now, many people think so; this May, a Goldman Sachs exec quit his job after making £10m from crypto investments.
But should you invest? The Bank of England warns of the ‘significant risks’ of relying on a ‘peer-to-peer system’, pointing out that ‘there is no central bank or government to step in if something goes wrong’.
Uz-Zaman’s take? ‘These past 18 months have shown a worrying trend of far too many people looking for short-term gains without considering the wider aspects of their financial planning.’ He advises your finances are better served playing the stock market.
‘Investors should be looking at long-term planning: the boring stuff like life and critical illness insurance, and utilising their ISA and pension allowance by investing in mainstream regulated funds,’ he says. ‘The UK has one of the best financial services industries in the world. Seek advice.’ Which probably doesn’t include Elon’s Twitter account.