analysis

Don’t get caught up in the Bitcoin bubble

It seems only the big league dealers make money out of these cryptocurrencies

12:32 January 3, 2018

It has been a while since I wrote three articles warning against dealing in Bitcoin and other virtual currencies. We have seen thousands of Bitcoin investors losing large amounts in their frenzied speculation and scams that fooled so many around the world.

Within a few days, the Bitcoin bubble burst after its value shot up from $6,000 to almost $20,000 without any material, financial or economic proof to justify the rise.

Only big speculators, who sit behind computer screens smiling at naive investors and dealers dreaming of quick profits that will fall from the sky, got the benefit. Instead of the long-awaited wealth, the earth shook beneath the dreamers’ feet when they saw the virtual currency collapse in one day by almost 40 per cent to $13,000.

While they were wailing for that sharp drop, big speculators earned an imaginary profit. They even repeated the game after two days and raised the value to $16,000 waiting for a new round of profit-taking.

The UAE Central Bank as well as other international institutions have warned against dealing in virtual currencies, especially Bitcoin. Some countries, including Kuwait, have criminalised dealing in virtual currencies for their devastating consequences on small investors, which will eventually reflect negatively on the economic and social situation of dealers.

Unfortunately, many people still insist on doing so, either because they don’t read or they don’t care about relevant warnings and are misled by promotional campaigns on social media platforms that claim dealing in virtual currencies would draw mega profits.

The Bitcoin has never been safe. It may collapse within a few hours, like what happened last week, when nearly half of its value was lost in a day. This formula will absolutely be repeated and many will be victimised.

The problem is that people get confused between virtual currencies and payment through new technologies, such as smartphones. Obviously, the two methods are completely different — the first one is like a mirage as no one knows its source or who stands behind it. The latter is already part of the financial and banking system, supervised by central banks, linked to national currencies, and is done in accordance with prevailing smart government systems.

Such trends will definitely lead to the disappearance of cash, but not virtual currencies, which is being exploited by speculators and traders to conduct illegal transactions away from the control of central banks as well as legislations governing monetary and financial trading.

However, those who recently incurred serious losses will seek to get compensation through more indulgence in the Bitcoin dealings, while reason says they should forget the losses and maintain what is left. The alternative would entail more losses and headaches for the dealers.

As virtual currencies become a good business for those who manage them, we will see more emerging in various forms and with their own justifications.

It is very important not to only be careful, but stay away from dealing in these currencies and to invest only through legitimate methods conducted under the supervision of countries and central banks. Doing so protects dealers and more often than not gives them returns on their investments and savings.