In case you have been living under a rock the past few years you can’t help but notice the meteoric rise of Bitcoin.
Bitcoin is a new form of currency otherwise known as cryptocurrency and whilst there are many other types of cryptocurrencies, Bitcoin seems to be the most established.
Many have jumped on board Bitcoin looking at it as an investment opportunity. It’s easy to see why. The price of one Bitcoin was $7,347 at the start of 2020 compared to $69,552 at the time of writing (4th June 2024).
That’s an 847% return in just over four years.
However, investing in Bitcoin is not for the faint hearted. There have been some dramatic rises but also some scary falls.
In November 2021 the Bitcoin price reached a then peak of around $64,400 before falling all the way to $16,683 a year later. A 74% decline.
Ultimately, I don’t believe betting on the price of Bitcoin to be a sound long term investment strategy. It’s a currency at the end of the day so you need to ask yourself whether you would normally trade pounds or dollars too?
While it is establishing itself the price of Bitcoin is highly volatile and something for speculating on rather than investing your family’s life savings into.
However, that’s not to say it might not be the future of money and if it is you might want to consider investing in the Bitcoin toolmakers instead.
Bitcoin could be the future of money
If you have ever studied the history of money, you will know that for a large proportion of time humans have used gold as a form of money.
Gold is virtually indestructible and there is a finite amount of it. It’s hard to manipulate the price of gold.
There have been times in history where the currencies we know now like pounds and dollars were linked to the price of gold. This meant that governments and central banks couldn’t really print more money than you had backed by gold.
Over time most countries currencies removed their link to gold and allowed them to free float which is the system we have today. It’s a system built on trust only and one that is deeply flawed.
Fiat money as our current monetary system is known is highly susceptible to manipulation.
Governments and central banks can literally print as much as they want. In fact, nowadays, they don’t even need to print money, they just add zeros to balance sheets.
All this has caused lots of issues in society which have been really well explained in Dominic Frisby’s excellent book ‘Life After The State’ and my colleague Awet’s equally impressive blog.
Cue Bitcoin. A new form of money which has no central control. Money that can’t be manipulated and could mean truly fast frictionless global trading.
This could really be the time for change.
But don’t invest in the currency itself
In the mid-1800s gold was discovered in California which eventually led to the gold rush.
Before the discovery of gold, California was a small territory. After the discovery, the population exploded as hundreds of thousands of prospectors came to open mines looking for more of the stuff.
This led to many new businesses such as shops, bars and brothels being created in the area to serve all the new residents. Businesses making money, not directly from gold but from markets created because of the gold.
One man named Sam Brannan was one of the first to hear about the discovery of gold in the area. Instead of trying to mine the gold for himself he had the clever idea of buying all of the equipment and tools prospectors would need.
Once the gold rush was in full flow, he was able to sell these tools at a very high markup making huge profits. It’s been said that he was California’s first millionaire.
Another chap named Levi Strauss was also a merchant during the gold rush who along with tailor Jacob Davis designed durable trousers that were ideal for the miners. They couldn’t keep up with the demand for their product and I’m sure you know how successful Levi jeans have become.
The point of these stories is that during the gold rush it wasn’t the gold miners that made the most money, it was the businesses selling goods and services to the people doing the mining.
The same could be the case for Bitcoin.
Rather than trying to speculate on the price of Bitcoin, if Bitcoin really is the future of money, then why not consider investing in businesses that help facilitate Bitcoin.
Businesses like:
- Bitcoin trading platforms.
- Bitcoin wallets.
- Bitcoin security.
- Bitcoin ATMs.
- Data centres.
There are probably lots of new businesses and sectors that we haven’t even thought of yet that will soon be created on the back of Bitcoin so be on the lookout.
Carl Roberts, Director
If you want to learn more about this topic, please find the link.
More information about our fund the YFS Intelligent Wealth Fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
