The digital currency has gone from tech curiosity to mainstream topic, leading its value to jump more than 10-fold in 2017
RITA Scott’s grandson convinced her in mid-November to get in on the latest investing sensation and buy bitcoin.
“I thought it was a big coin,” the 70-year-old said. “I didn’t even know what it was, a piece of coin? Why would I invest in a piece of coin?”
With a few hundred dollars of her money invested in it, Scott quickly caught on and started checking the price several times a day, even while playing poker at a casino in her hometown of Las Vegas.
Late Monday, as the price approached US$10,000 for the first time, her grandson, Anthony Santa, sold the bitcoin that he and his grandmother held, netting what he said was a gain of around 45% over just a few weeks.
That was prescient. While bitcoin later topped the US$11,000 mark – reaching its highest level in its nine-year history – the virtual currency tumbled more than US$2,000 later Wednesday as several exchanges struggled to handle surging volume. It rallied again later to trade at US$10,214.
“Believe me, I didn’t have this much fun with T. Rowe Price,” said Scott, a retired secretary and taxi driver, referring to her mutual-fund investments.
Bitcoin, a stateless digital currency that shares some investment characteristics with gold, has captured the imagination of investors.
As its value has doubled since mid-October and risen more than ten-fold in 2017, the currency has transformed from a curiosity among techies to a hot topic for mainstream investors.
But the speed of its ascent has some warning that it will end in tears. And, as Wednesday’s quick reversal shows, bitcoin is extremely volatile—the currency has declined more than 50% on eight separate occasions since 2011.
Another source of concern: The latest move higher in bitcoin’s price is drawing in more individual investors.
“They see the price break US$10,000, obviously they see the news, they hop on their app and go ahead and buy bitcoin,” said Bobby Cho, head of over-the-counter trading at Cumberland, the cryptocurrency unit of a high-speed trading firm in Chicago.
Paul Joseph Spelce, a 22-year-old graduate student in New York, was one of the newcomers who bought in. Over Thanksgiving dinner with friends last week, the conversation was dominated by talk of bitcoin. “Even this woman who didn’t have a computer at home couldn’t stop talking about how bitcoin was going to reach US$10,000 soon,” Spelce said.
After stewing about it over the weekend, he pulled an all-nighter poring over articles about bitcoin’s rise. He repeatedly searched the price of bitcoin on Google.
At about 6 am Wednesday, he placed an order to buy US$50 worth of bitcoin on Coinbase. Hours later his position was up about 11%. Then it was down 9%. “When I clicked, it was just one of those feelings. I’d finally read enough, finally felt confident enough to do it,” Spelce said. “My friends all think I’m crazy.”
Friends of Tony Horsely in Atlanta have been more understanding. The 78-year-old investor began investing in bitcoin over the summer just to add some spice to his portfolio. Soon, he moved about 5% of his portfolio into the coin and an exchange-traded fund based on the currency. He started writing a periodic, informal note to about 30 friends, in which he talks about bitcoin’s price dynamics and the logistics of buying it.
“I’m late to the game,” he said, “but I’m enjoying it.”
While some of his friends have expressed doubts, Horsely says about half a dozen joined him in buying. Meanwhile, he has accelerated his purchases, picking up more bitcoin on Nov 24, and then Wednesday morning.
The fervour for bitcoin has been global. Tom Reaney, owner of the Burger Bear restaurant in London, started accepting bitcoin about five years ago after a customer asked to pay for some bacon jam with the virtual currency.
Recently, nearly as many people ask Reaney about investing in bitcoin as using it to pay for a meal. “It’s quite lucrative,” says Reaney, who owns seven bitcoin. Even though he views a drop in price as inevitable, he says “I don’t want to pull my money out because it keeps going up.”
But bitcoin’s volatility is making many conservative investors hesitant, some of whom work in finance.
At the Asia Securities Industry & Financial Markets Association’s annual conference in Hong Kong on Wednesday, only two of about 150 professional investors raised their hands when asked if they had invested during a session on cryptocurrencies.
“It’s incredible that we’re [seeing this] at a finance event, but it’s actually very common,” said the panelist Henri Arslanian, PwC’s China and Hong Kong leader for fintech.
Arslanian, who also teaches a fintech course at the University of Hong Kong, said when he asks his students that same question, usually about 30% of them say they own virtual currencies.
In bitcoin we trust?
He said in the past few weeks he has received so many requests on how to trade cryptocurrencies that he has put together “a template response.”
While individual investors might be piling into bitcoin, some are cashing out quickly, potentially adding to the currency’s volatility.
Nathan Hoyle, a 27-year-old Londoner training to be a Navy pilot, bought £1,000 worth of bitcoin in September as a “curiosity”, he said.
When he saw the rally picking up steam, he decided he would take his profit and run if it got close to US$10,000 from the US$3,500 level where he bought it.
When the price rose above US$9,800 Wednesday, that was close enough. He said he sold his position, booking a £1,780 profit. “Now, I’ll wait for another price crash and buy again,” Hoyle said.
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