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Is Bitcoin a safe home for your savings?

Bitcoin is back!

The pioneering crypto-currency collapsed from almost $20,000 a coin in December 2017 to less than $3,500 early this year, but now it’s flying again.

At time of writing it trades at nearly $11,000 (£8,600), with some analysts setting their sights even higher. In the current upbeat mood, Bitcoin may look irresistible.

Think twice before putting money into it, though. Bitcoin and other cryptos such as Ethereum and Litecoin are not a form of savings by any stretch of the imagination. They are speculative investments. To be blunt, in my view, they’re a gamble. By all means, feel free to take a punt but as with any gamble, only put down money you can afford to lose.

Bitcoin: A Bit of fun?

It is true that Bitcoin has made early investors millionaires, or even billionaires. In 2010, the first known crypto transaction took place, with someone giving a friend 10,000 Bitcoin to buy two pizzas worth £30. Today, 10,000 Bitcoin is worth a cool $90m (£72m), making those the most expensive pizzas in history. I hope they were good.

If you’re kicking yourself for failing to get in early don’t be too hard on yourself. Plenty of people feel exactly the same (like me, grrr).

The important question is whether you should pop your savings into Bitcoin today. In my view, the simple answer is ‘no’. Cryptos are not an alternative to cash. If you put money into a UK savings account, it is protected by the government up to £85,000, under the Financial Services Compensation Scheme (FSCS). If you lose money from cryptos, you get no compensation. That applies whether you are hacked, forget your password, or its value crashes to zero.

Instead, make a plan

If you’ve got Bitcoin on the mind, I’d suggested taking a step back first to think about the basics.

Every one of us should start by clearing our short-term debts such as credit cards, then build a stock of money in an easy access savings account, sufficient to cover six months of spending in an emergency such as redundancy or ill-health. That done, most people should think about building up long-term retirement savings, either in a company pension, a personal pension or a stocks and shares ISA, the flexible tax-free investment wrapper.

If you don’t know where to start, this article could help you buy your first ever share. Those that start doing these things as early in life as possible, and carry on saving all the way to retirement, have the best chance to benefit from the compounding effect of investing.

A high-risk play

Once you have done all those sensible things, you can try a little speculation. That might — might! — include Bitcoin, but be warned. It may be a clever piece of technology, but so far its practical uses are limited. In my mind, it doesn’t do anything a credit card or currency transfer service doesn’t already do, cheaper and faster. Basically, you are buying it in the hope that its price will go higher.

And it could. No question about it.

The problem is that the higher it climbs, the riskier it gets. You could pump money in today only to watch its value halve tomorrow. You may be able to stomach that if you’re properly thinking about Bitcoin as a risky speculation. You may feel considerably different if you’re viewing it as a safe and secure investment. Yes, some have made fortunes, but other people who bought at $20,000 lost big money that they couldn’t afford to lose. Please don’t be one of them.

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