Bitcoin has become headline news again as it approached a record valuation this week, surpassing $19,000 (£14,230), before subsequently falling back down towards the $16,500 mark.
A growing number of professional investors argue that Bitcoin, the oldest cryptocurrency and the largest by market value, deserves a place in a diversified portfolio.
Sceptics counter that Bitcoin has no intrinsic value as few people use it to buy things, it is unproven as a “safe haven” asset and faces the threat of legal clampdowns that could make it worthless.
So should you buy some? And is it ever safe to do so?
‘Bitcoin is gambling’
Investors should steer clear, according to Felix Milton of Philip J Milton, a financial planning firm, because governments could intervene at any moment and outlaw it as a currency, making it illegal to own. “At the moment it’s allowed to operate but that may not last forever,” he said. “I would strongly advise against investing unless it becomes regulated by the Government.
“If this happened, it would reduce price volatility and legitimise it as an investment. But right now it is too risky to own as a serious investment and is more of a gamble.”
Simon King of Vermeer Partners, a wealth manager, said Bitcoin faced two main hurdles before it could be considered investible. He said it needed to be used as a means of exchange, like other currencies, but this was currently not the case. Secondly, it needed to be accepted as a store of value, like gold, but as it was launched only in 2009 it was too early to conclude this.
“All this, along with issues around fraud and theft, drastically limit its merits for a serious investor. For those who want to take a small gamble on volatility, fine. But it should not be an investment choice as part of a considered strategy and portfolio,” he said.
Invest with care
But not all professional investors are put off by Bitcoin’s volatility and newcomer status. Tancredi Cordero of Kuros Associates, a wealth manager, said the most important reason to own Bitcoin was that it acted as a “hedge” as its price moved in different directions from other investments, including gold.