With the value of Bitcoin rising again in fits and starts since early January, investors may be lured back (if they ever left) to the cryptocurrency that has had a wild and bumpy ride over the past couple of years.
Pub manager Myles Hunter says he first bought into Bitcoin in 2016, when the price of one Bitcoin was less than $1,000. Though Hunter declined to disclose exact figures, he says his initial investment had increased seven-fold only to drop 50 per cent by the end of 2022.
Regardless, he is sticking with the volatile asset.
“Bitcoin is still the wild, wild west and people are making a killing on it,” said Hunter. “There are a lot of people selling it, and wash trading it and creating the volatility.”
Wash trading is the illegal practice of buying and selling the same asset in a short amount of time to purposefully manipulate its market price.
Currency or investment?
Bitcoin is either a currency or a speculative investment that can be traded on a variety of different exchanges. The CIBC regards it as more of the latter. “At this point, Bitcoin seems to be more a speculative phenomenon than a real currency opportunity. However, we’re keeping an open mind,” said the bank in a brief report.
But despite risk, people continue to gamble in the hopes of striking it rich with cryptocurrencies. A study in the journal Addictive Behaviours found a connection between gambling and speculative trading.
“[T]here is evidence to show that people who are attracted to gambling are also statistically more likely to engage in higher risk speculation such as day-trading of stocks and crypto-currency trading,” the study concludes.
Investors trade impulsively as crypto values rise and fall in one day, leading people to bet on short-term gains, potentially losing money in the volatile market long-term.
Hunter refers to this crypto ‘gambling’ as “riding the ‘shitcoin’ casino”.
“[You’re] buying a random thing because you think it’s going to explode in value,” Hunter said. “People who trade them twenty-four seven eventually don’t feel a rush from a 10 or 15 per cent gain, which is better returns than most people’s investment portfolios do annually.”
An estimated 21,910 cryptocurrencies are now available for purchase according to CoinMarketCap. While they exist online, their value is typically backed by an open-sourced online ledger known as a blockchain, which is unregulated by governments or the broader banking system and is accessible to anyone.
Bitcoin remains the highest-valued cryptocurrency. It peaked at roughly $69,000 (U.S.) in November 2021. But had dropped by about 75 per cent at the end of 2022. One study published in late 2022 concluded that three quarters of Bitcoin investors had lost money.
But proving its potential for getting rich quick, between Jan. 1 and Feb. 28 2023, the price of BTC rose nearly 40 per cent before falling back a bit.
The collapse of the crypto trading platform FTX is estimated to have cost investors nearly $10 billion U.S. And cryptocurrencies have been dogged by lawsuits filed against celebrities for their ad-based endorsements, against Elon Musk for the promotion of Dodgecoin and by the collapse of FTX.
But the prospect of striking in rich remains very alluring, which seems to appeal to males (and predominately younger ones) more than females.
According to the Addictive Behaviours study, of the sample of people who invested in cryptocurrencies each month throughout 2020, men outnumbered women three to one. Trading was also done predominantly by Gen Z and Millennials.
Third-year Carleton University finance student, Daniel Cheung, began investing in crypto at 16. He has set personal limitations to try and limit the impact of the volatility on him psychologically.
“I think it's essentially the potential for cryptocurrencies to become widely adopted that keeps pulling me in, which seems far-fetched now … but there is a marginal possibility that one day it will become really big,” said Cheung.
(A study from the Journal of Behavioural Addictions, researchers theorizes that FOMO, or fear of missing out, and the illusion of control are some of the main reasons that people invest in this highly volatile market.)
But experts warn that being heavily invested in cryptocurrencies is very risky.
Carleton University Sprott School of Business Prof. Mohamed Al Guindy, has taught an advanced course on digital technologies, including cryptocurrencies.
On Jan. 30, he hosted a presentation at the university titled “Should you still invest in cryptocurrency,” which was attended mostly by males.
“The most important message I can have for you tonight is that Bitcoin is volatile,” said Al Guindy. “I wouldn’t keep my life savings in it.”