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Bitcoin is closing in on 13,000 (£9,725), in what is set to be another milestone in the cryptocurrency’s meteoric rise.
The price of Bitcoin pushed past 12,000 (£8,977) overnight, and was trading upwards of 12,700 (£9,503) by midday, according to CoinDesk’s Bitcoin Price Index, prompting further concerns over potentially volatile price movements.
A number of institutional investors say they are still avoiding Bitcoin, after seeing it rise around 1,100% since the start of the year.
Bitcoin is the world’s leading virtual currency, operating independently of any bank or central authority.
It was created in 2009 by an unknown person using the alias Satoshi Nakamoto, resulting in a so-called cryptocurrency that has its own value and is not tied to any physical currency.
Coins are transferred directly between users, and are kept in a digital wallet that can be accessed on a computer or mobile device.
A number of retailers now accept Bitcoin.
But aside from trading them for goods and services, or buying them on an exchange from existing users, new coins can be generated through a process called “mining” – where software and in some cases specialised computer hardware is used to to verify others’ Bitcoin transactions.
Bitcoin relies on this kind of decentralised technology – called the blockchain – for secure payments.
With companies keen to jump on the bandwagon and entice the public to spend their hard-earned cash on investments in Bitcoins, MoneySavingExpert Maritin Lewis has taken to his blog to brief consumers on the advantages and pitfalls of the currency.
“At this point I should say I’ve no expertise on the technology behind Bitcoin or other cryptocurrencies and assets,” the financial journalist warns.
So here are his four tips to avoid being caught out by the craze:
Don’t invest in something you do not understand
“If you don’t understand Bitcoin you should not be investing in it,” he writes, reports the Derby Telegraph.
Martin’s advice is that, while you might not need to be an expert in the technical details, you need a thorough understanding of what you’re getting into.
He writes: “You need to understand how it works as an investment, how liquid it is (ie, can you get out when you want to), the level of risk and what can drive the price up and down.”
His advice is not to invest “just because a friend told you to”, but to do your own research and make the decision that’s right for you.
Where is the demand for Bitcoin coming from?
“To be created Bitcoins have to be mined and there are meant to be only a limited possible number to be found,” writes Martin.
“The fact it’s a scarce resource leads to the assumption that if demand rises so will the price.”
It is a gamble
Martin explains that Bitcoin, like stocks and shares, is an investment – albeit an unregulated one.
“Putting money in it is a form of gambling,” he writes. “That means if it does well, you could make serious amounts – 10, 20, 30 times or more what you put in; or just as possible, if it goes badly wrong, you can lose everything.”
His advice is that investors need to be prepared and consider their attitude to risk before parting with their cash.
Although the value of Bitcoins has rocketed, particularly since the start of 2017, Martin warns that “past performance is no indication of future performance”.
“It may be that this speculative rise will continue. Which means if you put your money in now you will make a fortune. On the other hand, as we’ve seen often in history – whether it’s the canal mania of the 18th century or the first internet boom – this could just be a bubble, and soon to burst.
“We’ll only know with hindsight – you have to accept the uncertainty.”
Don’t fall for Bitcoin seller scams
“People often ask me if Bitcoin is a scam. No, it’s not. Yet that doesn’t mean there aren’t a lot of scams involved with Bitcoin,” warns Martin.
“Bitcoin isn’t the easiest thing to invest in – you need to buy it and store it safely – and that opens up room for many dodgy people to try to take advantage.
“I would certainly be worried about investing in a company that I’d just spotted because it’s advertising on Facebook – which is rife with scam adverts in many areas – especially if it makes it look like a no-lose option.”
His parting piece of advice is to stress that, if you’re going to buy, do your research and go to “what is hopefully a legitimate Bitcoin seller”.
To read Martin Lewis’ full Bitcoin advice blog post, click here .