Bitcoins are a bit of a flighty flutter

Why the excitement over cryptocurrencies? Dr Benjamin Holdsworth on why it might be gambling, not investing.

We humans are never lacking in our enthusiasm for crazy ‘investment’ ideas. Around 400 years ago, the Dutch managed to work themselves into a frenzy over tulip bulbs. 

At the height of the hysteria, one bulb of Semper Augustus apparently changed hands in exchange for 12 acres of land.  

In the 1700s, the South Sea Company Bubble ruined many as the stock price rose almost ten-fold in 1720, largely on the back of false rumours, and then crashed precipitously. Even Sir Isaac Newton himself got burnt, losing almost all his savings:

‘I can predict the movement of heavenly bodies, but not the madness of crowds.’

By all accounts, the madness surrounding equity investments was widespread at the time, with one company supposedly coming to market with the greatest marketing spin ever, describing itself as ‘a company for carrying out an undertaking of great advantage, but nobody to know what it is’.

Shell companies

Today, investors face similar sentiment in certain corners of the investment world, from the rise of Tesla’s stock price – at the time of writing, down -36% from high – to GameStop’s ‘to the moon’ rally, now down -51% from high.