Despite war in Ukraine, rising interest rates and the soaring price of oil, major cryptocurrencies such as Bitcoin have remained relatively stable this year.
Bitcoin, the biggest cryptocurrency, is currently worth £31,000 ($41,000) a coin and has been steady since the start of the year, when prices fell from a high of more than £45,000.
Depending on your appetite for risk, and whether you are buying a long-term asset or want to dip your toes into crypto, the relative stability of Bitcoin is either good news or bad.
So, should you buy some Bitcoin and when should you buy it?
Should you buy Bitcoin?
Bitcoin has not convinced everyone yet. There are many out there who will advise staying well clear of the asset.
Warren Buffett, the "sage of Omaha" and someone who is widely seen as one of the greatest investors ever, famously described Bitcoin as “rat poison”.
Buffett’s opinion on Bitcoin is unlikely to have changed in recent years. However, his holding company Berkshire Hathaway recently invested $1bn into Nubank – a bank specialising in crypto assets, suggesting a softened approach from the investor.
Whether you are a naysayer or an enthusiast, it is becoming more and more commonplace for investors to dedicate a percentage of their portfolio to crypto assets.
‘Bitcoin could fall to zero’
The Financial Conduct Authority, the City regulator, warned that people buying Bitcoin did not understand it and it was extremely risky as prices could fall to zero.
It found that only 58pc of people believed they had a good understanding of how cryptocurrencies worked and warned investors betting on the cryptocurrency to be "prepared to lose all their money".
The watchdog highlighted the lack of protection for investors as cryptocurrencies were unlikely to be covered by the Financial Ombudsman Service and Financial Services Compensation Scheme. The FCA also warned investors to be alert to scams.
Pimfa, a trade body for the wealth managers, said crypto was extremely high risk. Tim Fasson, of Pimfa, said: "For some people desperate for a quick and easy solution to their own financial turmoil, cryptocurrencies might look attractive. But they are extremely high-risk and highly-volatile investments that only the most sophisticated of investors should consider."
‘Crypto prices can keep rising’
However, others argued that Bitcoin was no different to other investments and should not have been singled out for special regulatory attention.
Iqbal Gandham of CryptoUK, a trade association, said the FCA’s statement could be applied to any investment, especially stocks that have risen in value for the past decade.
“The current valuation models for traditional stocks no longer hold. We have seen unprecedented positive market movement for over a decade,” he said. Mr Gandham admitted that volatility was a drawback to owning Bitcoin, but buying and holding was the right way to mitigate this.
Christian Ambruester, of wealth manager Blu Family Office, said it did not matter that Bitcoin and blockchain, the technology it uses to verifypayments, were confusing because there was close to $2 trillion invested in cryptocurrencies and daily trading volumes were higher than in many stock markets.
“To make Bitcoin disappear, every country on earth would have to agree to the same rules. Until that happens and there is peace on earth, it is easy to see why the price continues to go higher,” he said.
Those involved in cryptocurrency are keen to make comparisons to gold. Tyler and Cameron Winklevoss, of cryptocurrency exchange Gemini, said Bitcoin was gold for the digital era and would become the go-to inflation hedge.
“I think a lot of people are starting to realise that Bitcoin is really the best defence against inflation. It doesn’t really need to be a great medium of exchange, it just needs to be better than gold and it’s better across the board.
“The supply is fixed at 21 million, while gold is not completely fixed. Bitcoin is software and it can be sent through the internet, like email. Gold is hardware and it's hard to transport,” Cameron Winklevoss said.
How to buy and sell Bitcoin
You can buy and sell Bitcoin on dedicated exchanges or via general stockbrokers. The largest include Coinbase and eToro, while digital bank Revolut and payments firm PayPal allow Bitcoin trading, but coins cannot be removed out of their networks.
Bitcoin can be stored in digital “wallets” on trading platforms but are often transferred out into more secure online wallets or even on to hard drives.
Felix Milton, of financial planner Philip J Milton & Company, said: “Owning Bitcoin is not like having money in the bank. There is no FSCS protection and exchanges can be hacked. Moving Bitcoin on to a hard drive is the safest way to store it but can be a technical challenge.”
