A MINI-SURGE in the price of Bitcoin this week provided a glimmer of festive cheer for its investors after a sobering year in which billions was wiped off the crypto market.
Bitcoin’s value rocketed to a record $20,000 (£15,800) on December 17 last year as crypto finance hit the mainstream.
But the price has since plummeted by nearly 85 per cent, sinking to its pre-bull-run level of $3,000 in late November.
A Santa Rally on Monday – which marked exactly one year since Bitcoin hit its all-time high – lifted the market by 10%.
Now priced at around $4,000 (at the time of writing), experts are debating the future for Bitcoin – and particularly the much-vaunted block-chain technology that lies behind it.
Gary McFarlance, cryptocurrency analyst at interactive investors (ii), said the bubble “has well and truly popped” for alternative currencies.
“Investors’ memories are long, especially when many are nursing huge losses, so it could be a long time before we see money flooding back into crypto from ordinary investors and speculators,” he said.
Marc Shoffman is a financial writer who invested £10 in Bitcoin as an experiment in 2013. His stake grew into the thousands during last year’s spectacular rise, but it now stands at £466.
“I was lucky with the timing as I entered the market as it was growing. I have still managed to get a 4,780% return on my money – which is pretty hard to find elsewhere at the moment,” he said.
“But the key, as with any investment, is to only put in what you can afford to lose.
“I only put a small amount in so I can afford to hope that the price will again rise to new heights.”
Mr Shoffman said the rollercoaster ride is largely down to continued uncertainty over the best use for Bitcoin, which was founded by a still-unknown developer in 2009.
“As a currency, and backed by its block-chain technology, it has the potential to help those unable to open a bank account or with poor access to financial services,” he said.
“As an asset it is uncorrelated to stocks and shares, so provides the potential of extra returns for the more adventurous investor.
“There is nothing wrong with being both, but the volatility will only be controlled in the long term once its use is much more established.”
Indeed, the Government and tax office took major steps towards defining cryptocurrency’s status in the UK this week.
City minister John Glen indicated that the Financial Conduct Authority will be given powers to regulate the likes of Bitcoin, treating them as financial tokens rather than a currency.
This will give consumers greater protection against mis-selling, fraud and the collapse of crypto platforms.
The move came in response to recommendations made by the Treasury Select Committee, which wants Britain to be a “global centre” for crypto transactions.
HMRC has also now clarified that it expects investors to pay full capital gains tax if they buy cryptocurrency purely to make a return, while tokens paid by employers, transactions or free coin giveaways – known as airdrops – will be subject to income tax and national insurance contributions.
However, lenience may be shown if crypto investors are defrauded, see their holdings become worthless or lose access to their account so long as they can prove it.
Mr McFarlance said: “Cleaning up the Wild West of crypto is a good thing for consumers and the industry itself if it wants to attract mainstream interest, but it could raise costs.
“The days of crypto start-ups fundraising through so-called initial coin offerings may well be numbered, to be replaced by compliant security token offerings, which we are already starting to see happen in the US.
“The introduction of licensing regimes for crypto exchanges, as already is the case in Japan, are also a near certainty.”
Nigel Green, founder of the deVere financial group, said increased scrutiny from regulators, while welcome, had driven Bitcoin’s turbulence in recent times.
However, Mr Green believes that a “herd mentality among investors” and the introduction of a new spin-off of Bitcoin Cash could also to blame.
Bitcoin Cash – a separate cryptocurrency from Bitcoin and one of many so-called “hard forks” from the underlying block-chain – itself split into two versions, which have recently divided investors in the market.
Mr Green, whose company runs its own cryto exchange, said: “Crypto cynics are using this current wave of volatility to knock digital currencies.
“Whether it is Bitcoin, or any of the current generation of coins, or not, cryptocurrencies are here to stay.
“Savvy investors…will be capitalising on the lower prices in order to build their portfolios and shore-up their positions.”