This is all while being driven by real commercial long-term demand for the currency as described further on.
Conservative investors should acknowledge however that the long-term demand usage growth is very real and that Bitcoins are increasingly being used to invest in real assets such as property.
We are already some way along the road to wider adoption by consumer businesses: Microsoft, Dell and Virgin are just a few high profile companies among a total of around 100,000 vendors across the world who are now accepting Bitcoin.
Advisers should also be aware that Bitcoin is not the only cryptocurrency on offer. There are currently 8 different coins that boast a market capitalisation of more than $1bn (£0.77bn) dollars each, with the total market capitalisation of the top 100 cryptocurrencies hovering around $100bn (£77.6bn).
That is not to mention the plethora of smaller alternative ‘alt-coins’ that hope to muscle in on the action.
There are currently five different exchange listed investment products on the market and a number of cryptocurrency exchange-traded funds in the US are under review by the Securities and Exchange Commission - it appears that the financial world is starting to sit up and listen.
The Initial Coin Offering (ICO)
At present, there is around $42bn (£32.6bn) of Bitcoin in circulation, and that is not to mention the massive volumes of other cryptocurrencies also floating around in digital wallets. The limited recognition of digital currencies to-date is making their owners hungry for alternative places and assets to invest in.
The Initial Coin Offering (‘ICO’) is one such investment and can be compared to an initial public offering (IPO) in the way that they raise funds for those who launch them.
The main difference being that companies issue ‘tokens’ in return for cryptocurrency investment, with the ‘tokens’ representing the shares or rights that would usually be issued in an IPO.
As with Bitcoin investment, ICOs are not for the faint hearted. The best examples of successful ICOs have created spectacular gains – the Ethereum Foundation ICO raised 31,500 Bitcoin and subsequently generated a 10,000 per cent profit for its backers (yes that was four zeros.)
At worst, ‘cowboy’ ICOs have ripped off investors as unscrupulous firms have simply run off with the cryptocurrencies that they had received.
ICOs are currently unregulated, meaning that legitimate, forward-looking firms are being unfairly tarred with the same brush as the crypto-scammers.
However, as ICOs branch out and become more common funding mechanisms for a more diverse range of companies, it is likely that regulators will be able to safeguard investors and unleash the full power of this new funding method.
