Cryptocurrencies like Bitcoin have been a hot topic in investing in recent years. But can crypto investing really be classed as investing at all? In this video, the financial journalist and host of BBC’s Money Box, PAUL LEWIS, explains why it actually has a lot more in common with gambling than traditional investing.
TRANSCRIPT
Robin Powell: Most of us know, or at least have read about, people who’ve made money on cryptocurrencies like Bitcoin. Cryptocurrencies are a form of money designed to work through a computer network that is not reliant on a government or a bank. Here’s the financial journalist and author Paul Lewis.
Paul Lewis: Cryptocurrency was invented to be, first of all, not centralised – there’s no central bank – secondly, it was stored in a sort of what they call a “ledger” – a blockchain ledger – so that everyone’s record is visible to everyone else, so you can see who is on there at any one time. And because it’s decentralised, and because it’s invented on a computer and not by a government, it was supposed to be an alternative way of paying for things. But it’s really been hijacked by – I suppose investors is a kind word – but hijacked by a lot of criminals, actually. A lot of gamblers, people who want to make money quickly; and of course the value of the most famous cryptocurrency, Bitcoin, has gone from a dollar to whatever it is now. So people have made a lot of money. They’ve bought them and they’ve gone up in value and they’ve sold them, if they’re lucky. The problem with it is, it’s surrounded by criminals. If it’s a gamble, criminals are all around the gambling houses like the Wild West. Or in some cases, they even run the gambling house.
RP: 2022 was a dreadful year for cryptocurrencies. Values fell sharply as confidence plummeted amid the collapse of several crypto exchanges — notably one called FTX. The value of these cryptoassets is bound to go up and down again, but the
bottom line is, they’re very risky.
PL: There is a real danger that you will lose your money, and one bank told me that they had banned any movement of money from bank accounts into cryptocurrency because one in five of those movements was fraudulent, and they wanted to protect their customers. And I have to say, themselves! Because they do reimburse people, that bank, if they lose money. So it really is very dangerous, and why I say to people, “don’t ever, ever buy it.” If you’re very careful, if you understand the whole thing thoroughly, and you don’t put more money in than you can happily lose; then you might want to try it, but the safest advice is don’t do it. Or, as I say, if you want to dip a toe in cryptocurrency, make sure it’s a toe you’re willing to lose – because you may well do so.
RP: Another point to remember is that crypto is not really a proper investment at all, in that it doesn’t produce a return. For Paul Lewis, it’s essentially a gamble.
PL: So it produces no income. The only way you make money is buy selling it to someone at a future date when it’s worth more; and that’s not really how investment should work. Investment should keep your money safe and pay you a return, whether you take that and spend it or just use it to build your investment up. So, it’s not an investment – I call it gambling because you’re gambling that, when you want to sell it, there’ll be somebody foolish – or perhaps sensible – enough to buy it off you at that price. But you don’t know that’s going to happen, you’ve no idea whether that will happen.
RP: One more thing, if you are tempted to speculate on cryptocurrencies, don’t rush in. Better still, consult a financial adviser.
ALSO IN THIS SERIES
Having strong opinions can be costly
How to navigate stock market volatility
Very few active funds outperform in the long run
CONTENT FOR ADVICE FIRMS
These videos are examples of the high-quality financial education content produced by Regis Media. If you work for a financial advice firm and would like to learn more about the content we provide for advisers around the world, email Robin Powell, who will be happy to help you.
THE TEBI YOUTUBE CHANNEL
Have you visited The Evidence-Based Investor’s YouTube channel lately? You’ll find a wide selection of videos on there, all about investing and personal finance. Why not subscribe and be one of the first to see our latest content?
© The Evidence-Based Investor MMXXIV
© 2020 The Evidence-Based Investor. All rights reserved.
