BITCOIN – It’s not all good.
BITCOIN and several other of the cryptocurrencies are a phenomenon. I don’t think anyone can reasonably contradict that; the price movements are astonishing – financial markets on crack cocaine!
Everyone is talking about BITCOIN; we possibly have the biggest ever example of herd mentality the world has seen and the world’s media are gladly fanning the flames. It plays on those very basic greed and envy traits that exist in all of us. If everyone else is making money, why can’t I?
One fund manager has returned 24,004% for their clients since 2013 trading cryptocurrencies. The report doesn’t state how many clients there were at the time but I’m guessing not too many, the sensational return is what we focus on.
Remember the dot-com bubble, remember sub-prime mortgages – they were all a shoe-in to make easy money. BITCOIN is too volatile to ever be correctly described as a currency, but everyone uses money and this has widened the appeal far wider than those who traditionally invest in financial markets and understand risk. That, in itself, is very dangerous.
The warning signs are starting to surface. One large FX broker in the UK lost £55m in November through not hedging their exposure to cryptocurrencies. I doubt too many people will lose any sleep over that but in trying to claw back some of their losses, they refused to pay any affiliates for that month’s business. When retail clients lose money, as the majority do, the brokers bank a fortune, lose money and the brokers will find a hidden clause in your agreement that there is no need to pay out!
Okay, you might have no sympathy for the brokers or the affiliates that send them business, that’s probably fair enough. One FCA regulated broker came up with a novel solution for a client that made an awful lot of money trading cryptocurrencies. They zeroed his account, paid him none of the £37,000 that he made and the case continues.
Unless you own the physical coins, even when you win, there’s every chance you’ll lose. Brokers traditionally lure people in with misleading advertising, start them off trading at the absolute apex of the volatility pyramid and then don’t pay up when they start to lose money.
Other brokers have stopped offering prices on cryptocurrencies. They are already experiencing losses and are looking to curtail the risk. BITCOIN can move $2000+ dollars over the weekend! It is a one-sided market and there is no effective hedge other than the physical coin and that’s simply not cost effective. Futures and Options in an efficient market should level out some of these problems or they can fuel the speculation. I suspect the latter.
I have no doubt that brokers are already experiencing substantial losses and there is a very real chance that one will go bust very soon. Markets break up for Christmas very soon, BITCOIN is trading at $16,000 today. Look at your trading screens on the 2nd January and it could be at $30,000 or $1000!!!!
Rest assured, someone is going to get hurt. Don’t follow the herd. If you’d like to avoid taking a hit, either follow my blogs here or look for some education at Bizintra.com. We have a new cryptocurrency course starting in January, we tell it how it is, we don’t follow the hype or the herd. Your safety is our safety.