Let’s NOT buy Bitcoin!

“Joe” called me and said that he has £5000 to invest.  He wants to buy Bitcoin.   I asked him why and he told me this:

“My mate bought some Bitcoin in July 2020.  Each Bitcoin was worth about $9000!  He told me that he sold it last week for about $47000!  That’s mad!  Why would I not want to do that?”

Why indeed? 

I asked Joe if he had bought Bitcoin before or actually, if he had bought any Cryptocurrency at all.  He hadn’t.  

I went on to ask Joe the following questions:

Do you have any other savings?

Do you have any other investments that are intentionally invested to give a return over a longer period?

Do you know what Bitcoin is?

Do you know what Cryptocurrency is?

Do you run a monthly budget?

Are you debt free? (by that I meant credit card or personal loans)

Are you prepared to lose your £5000?

He looked at me puzzled and said no.  No to all the questions.

Bitcoin is a cryptocurrency that works using a technology called blockchain.  Blockchain is a kind of technology that is decentralised and spread across many computers that manages and records every transaction.  Part of its appeal is that it is supposed to be secure BUT it is also unregulated and run by people we don’t know and can’t see.  There is no regulation when buying and selling Bitcoin, or any cryptocurrency.  

There are more than 6700 different cryptocurrencies that are traded publicly and more are emerging every day.  Bitcoin is currently the most popular, and yes it may go up in value, but it may not.  This article is not about who should be involved in cryptocurrency and when.  It is about protecting ourselves in a sensible way so that we have the minimum chance of being really, really upset if it all goes wrong.  

Let’s go back to Joe’s situation.  He has £5000.  That is great, but let’s see what else he has or hasn’t got in place right now.     Firstly, he has bad debt.  By that we mean that he has credit card debt and maybe a personal loan.  Paying off bad debt is a priority, even if he is not paying interest on it right now, he cannot guarantee that he won’t be sometime in the future.  Next, as he is not running a monthly budget, he doesn’t know how much he is spending or saving each month – and actually he has no savings so how can he know that he won’t need the £5000 any time soon?  He has no “peace of mind” fund tucked away – the pot of money that will help him out when the car breaks down or he loses his job.  He doesn’t have any real knowledge of what Bitcoin, Cryptocurrency or the Blockchain is which means that he will likely have even less information on how to store his Bitcoin safely in a hard wallet.  Lastly Joe says that he is not prepared to lose his £5000.  

Buying Cryptocurrency currently is speculation, gambling.  So, the idea behind this article is to ask you all to be careful out there.  Please do not play with money you cannot afford to lose.  Please know how your money flows through your life before you take risks with money that is precious to you.  Please pay off bad debt before gambling with money that you want to grow and keep you safe.  If you have any hunches that sound like a great idea or doubts that you want to work through, please chat to a financial adviser or money coach.