Get to grips with the Bitcoin hype

Everyone’s talking about cryptocurrency these days — especially Bitcoin, which recently rose to an all time high of over $52,000 per coin. If you aren’t in the loop, all this hype can feel overwhelming, but we’re here to help get you up to speed.

So, what is Bitcoin and should you be paying attention to it?

Remember when you had to use rands to buy tokens to ride the merry-go-round? Well, cryptocurrencies like Bitcoin represent these tokens and the merry-go-round represents various goods and services. Bitcoin is simply a form of payment and you can use it to buy stuff.

Why is Bitcoin so valuable right now?

1) Fortune 500 companies like Tesla have started to take a chance on the long term value of Bitcoin by investing some (in Tesla’s case, 8%) of their company’s cash in Bitcoin. Bitcoin is viewed by some as a safe-haven asset*, like gold, cash and jewellery, since it isn’t tied to traditional money policies. This means its value isn’t affected by the government or central bank decisions that in turn affect local currency values.

Some people believe that Bitcoin is the currency of the future and its adoption into the mainstream market as a viable payment method means it has more actual utility by the day. This has pushed its price higher. The city of Miami, for example, is considering allowing its citizens to get paid in Bitcoin and to allow them to pay their tax with it too.

2) FOMO. Oh yes, even in the world of economics this plays a role. The fear of missing out by investors looking to get rich quick is a reason for Bitcoin’s value climb. It also poses the most risk, as it introduces some level of sentiment-driven pricing*. When this happens, it becomes very easy for the price to gain momentum — in either direction. As a result, the value of Bitcoin can be very volatile in the short term.

What does this all mean to you?

As the world evolves, new technologies that still need to prove themselves come into existence. In the long run, some of them could change the world. If you’re someone that enjoys being an early adopter that wants to invest in future technologies and you’re prepared to take the risk, you could consider adding Bitcoin to the high risk part of your investment portfolio. It’s important to weigh up the risks and potential rewards involved. Consider things like not putting all your eggs in one basket, especially volatile assets like Bitcoin. Remember to consider your whole financial situation before investing and to only dabble once your rainy day fund is set up and stable.