I stuck all my money in cryptocurrency but still don't understand it, says JOE WHITWELL (...and he had to sell his ethereum to buy breakfast)

I stuck all my money in cryptocurrency but still don't understand it, says JOE WHITWELL (...and he had to sell his ethereum to buy breakfast)

As a technology and finance reporter, a lot of people ask me about cryptocurrencies.

Since the start of the year, I have spent most of my time trying to explain blockchain, and bitcoin specifically. I have tended to tell people to steer clear, but that has hidden an awkward fact: I don't really understand cryptocurrencies myself.

Is it a bubble? Probably. Is it the future of finance? Maybe. Is it worth investing? I couldn't tell you and, now that I have invested some of my own money, I still can't.

High stakes: Joe spent his £600 savings on three cryptocurrencies

I put off investing for a very long time, but like many people, the drip feed of national news articles through November and December eventually convinced me to take the plunge.

Something about the topic being written about in mainstream newspapers and not niche online magazines made it seem acceptable.

Investing became easier, too. Companies like Revolut allow you to buy cryptocurrencies from their app, which you can link to your bank account. There is no more remembering private keys, doing backflips or delving into the dark web. Just a few taps of a phone screen, and congratulations, you have bought into the weirdest financial trend of the decade.

So what did I do?

I split £600 pounds across the three cryptocurrencies that Revolut offers: bitcoin, ethereum and litecoin. Revolut take a 1.5 per cent fee for the service and there are associated costs with buying the currencies themselves. It made paying £7.50 to to buy shares with Barclays seem very cheap indeed.

Why did I split across three currencies? No rhyme, no reason, but splitting felt instinctively like the best thing.

It reminds me of the way that venture capitalists invest in tech start-ups. Instead of investing in ten companies and hoping each of them grow by a modest amount, they invest in high-risk, high-growth companies. Because it makes better returns to have nine failures and a Facebook than ten weak performers.

The issue with my investing strategy is I have no idea what normal is. I still don't. I know what a 'good' share return is or what a decent tracker fund pays each year. Nobody really knows what good in cryptocurrencies looks like.

It hardly feels like investing, because there is so little strategy. Just stick it all on red.

So when will I sell? I wanted to double my money. But all three immediately dropped in value. I decided to hang on, while the crazy fluctuations of the market destroyed my adrenaline supplies.

Eventually I became more sanguine, checking once a day, and then once a week. Then, on the first Monday back after the holidays I realised I was bumping along the bottom of my overdraft.

Bitcoin before breakfast: Joe decided to sacrifice his ethereum instead

I almost sold my bitcoin for breakfast, but it had lost 25 per cent of its value. Instead I sold the ethereum, which had made a modest profit during the period.

So where am I now? Well, £200 pounds of bitcoin is now worth £183. My £200 of litecoin is worth £153.86. And I sold my ethereum for £237. If I hadn't have had that breakfast, it would now be worth £262.

What have I learnt? I have absolutely no idea what I'm doing, and let's be honest – nobody else does either. A fraction of a fraction of a per cent of investors probably understand crypto.

Good view: Investors knew what a tulip was, it is less obvious when it comes to cryptocurrencies

The conundrum is this: are bitcoin and the other cryptocurrencies going to present a genuine paradigm shift in international banking, or is it just turbocharged tulip banking?

At least with the tulip bubble in Amsterdam during the 1600s when the price of tulip bulbs rocketed, the average person could understand what a tulip looked like.

'I have never seen a tulip.'

'It's like a daffodil but the flower points upwards.'

'Oh OK, why is it worth thousands of pounds?'

Tulips were obviously a bubble.

But with cryptocurrencies the technological babble is important, because it makes people think they are buying something futuristic and valuable. When we might all just be buying hopes and dreams.

For me though the fundamentals of investing stay the same. Always try and invest in what you know. Because if you do get burnt, at least you know why.

Original article and pictures take www.thisismoney.co.uk site