An up and down week for Bitcoin – investors shouldn’t expect any less

By Ellie Pocock on Friday, 15 January 2021

Bitcoin is having a bit of a moment whether you are a fan of the digital currency or not.

The well-known cryptocurrency sprung onto the scene in 2009 and has been the subject of much discussion in its 12 year history. Not least during the last week. Last Friday the value of Bitcoin hit an all-time high at $42,000, having doubled in less than a month. But, cryptocurrency doesn’t come without risk and that was all too obvious for its investors on Monday morning. From the $42,000 high, the value of Bitcoin dropped by 28% on Monday – that’s a punchy drop. To put that into context, the FTSE ‘s biggest daily drop in 2020 was 10.87% and this came in March as global markets tumbled on Covid-19 fears.

These wild swings in value have led the FCA, the UK regulator, to issue warnings on the volatility of bitcoin, telling investors to be prepared to lose all of their money. And even Christine Lagarde, President of the European Central Bank, has called for global regulation of bitcoin. Some investors enjoy the ride, especially if they have some traditional safe haven investments to fall back on should it all go bust. But the reality is that no investor can accurately predict where bitcoin will move in any given day, week, month or year.

These warnings and all-time record highs aren’t the only bitcoin news that has grabbed the headlines this week. Stefan Thomas, a programmer who lives in San Francisco, has gone viral for an all too familiar experience. We all know the frustration of locking ourselves out of an account because we have forgotten a password. I usually get it when I lock myself out of my ASOS account but Stefan is dealing with much higher stakes.

He has just two password guesses left (out of 10) to unlock a hard drive which holds £175million worth of bitcoin. Over a decade ago he was given 7,002 bitcoins for a video he made explaining how cryptocurrency works (the irony!) and he tucked it away in an IronKey digital wallet on a hard drive. Fast forward to today and with the growth that bitcoin has enjoyed, this payment is now worth hundreds of millions. A truly life changing sum of money. Can you imagine the stress! If he doesn’t get it right the hard drive will encrypt itself and will be near on impossible to retrieve.

Since he shared his story, Stefan has shot into newspapers around the world and now some famous tech names want in on the action. Ex-Facebook security head Alex Stamos has offered to help - for a 10% cut. I think I would take him up on that offer but who knows what will have happened to the value of bitcoin by the time they’ve cracked the code.

I hope that Stefan gets hold of his money and it is still worth something – but who knows with bitcoin. And despite making him potentially a millionaire, even Mr Thomas has admitted this experience has completely put him off any future dealings with crypto. Instead he will rely on the bank to look after his money in the future.

Yes, there is money to be made in bitcoin and other cryptocurrencies but there is also money to be lost. I think I’ll keep watching from the side lines for now.

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