The Daily Telegraph - Money
Bitcoin is still a buy – but I won’t touch Dogecoin
A couple of years ago I wrote in these pages about the rise of cryptocurrencies and how I thought Bitcoin would continue to flourish. Since then it has risen in price from £ 8,500 to about £ 35,000 and institutional money from the likes of pension funds and insurers has now joined the party with established investment firms such as Fidelity offering a route into the market for the big investors.
After more than a decade the crypto market seems to have moved from a pretender to a contender. In the past few months other cryptocurrencies have started to make their way into the mainstream; perhaps the two most highly publicised are Ether (commonly referred to as Ethereum) and the Elon Musk-backed Dogecoin.
In 2016, when I become seriously interested in the crypto market, I bought and sold many of these Bitcoin alternatives, or “altcoins”. Many have proved profitable; some have been a con. Yet, while I am still bullish on Bitcoin, even after this week’s volatility, I am very sceptical about most altcoins.
Broadly, there are three types of crypto currency: coins designed as money (such as Bitcoin), coins that allow multiple functions across a blockchain (such as Ethereum) and tokens whose primary function is to act as a form of currency within an app.
The problem with this last category is that these altcoins usually don’t have a valid reason for anyone to buy them. Imagine you’re pitched an opportunity to invest in an event-planning company. In return for your money you receive some so beer tokens that you can use at on one of its festivals. Would you invest in anticipation that the festival will be so popular that the value of the bee beer tokens will rocket and you can sell se them at a profit? Or would you insist on receiving shares in the firm instead? I’d do the latter ter. Yet a lot of crypto projects hav have convinced “investors” to do the former. A Another big difference between bet Bitcoin and the rest is that Bitcoin is not controlled by any one on company or person. The majority of altcoins are controlled by a small group gr of developers who can do whatever they want: issue new tokens that invalidate inva the ones you bought, perhaps, o or issue new coins that dilute the value – or simply disappear with the cash. If you plan to buy an altcoin, ask yours yourself: who controls it, is there limited s supply and does it have any real-world uses? Dogeco Dogecoin, which has risen by an eyewatering 17,000pc in the past year, to me appea appears excessively speculative in a highly sp speculative market. While Bitcoin and, to a lesser extent, Ethereum
‘If you plan to buy an altcoin, ask yourself: who controls it and is there limited supply?’
have proven prov their value in the medium term, the likes of Dogecoin should be treated with w greater caution. It’s not investing, investing it’s gambling.
My best bes crypto buy remains Bitcoin, which has ha gained more than 12,000pc since I bought it, while Ethereum has returned an even bigger 33,000pc. Of the rest, I like Dash, Monero and Neo, although I doubt they will ever achieve the returns of Bitcoin and Ethereum. Cardano and Stellar are two that I missed early on and they have rewarded their backers. Of course there have been failures too. Fortunately, my losses have been small and infrequent but one of the worst was Atlant.
And finally, remember that the process to buy and safely store crypto is still not straightforward. It involves registering with an exchange such as Coinbase or Kraken, transferring your money to them, buying coins and then transferring them from the exchange to your private external wallet. For the lesser-known coins the process can be even more complex. If the last few sentences sound confusing, my advice is don’t do it.
There are now several funds and ETFs that offer exposure to the market without the personal responsibility of managing dozens of different cryptos on your own. They’re probably the easiest way to dabble in the crypto world securely and tax- efficiently. However, because of regulatory caution you’ll need to use an overseas broker.