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Avoiding the Bitcoin mania

A few weeks ago I was approached by a referral agent asking if I would consider introducing my private wealth clients to an online coin club that trades digital coins like Bitcoin, Ethereum and other online currencies, in exchange for a lucrative commission. Even as I declined, as I would all speculative offers, it became clear that another speculative and hazardous risk for individual investors has manifested.
What are online coin clubs?
Online coin clubs function like multilevel marketing businesses; new members are introduced to the club by existing members who make a sizeable cash investment generating commissions for the introducing member. New members in turn introduce other members generating commissions up and down the chain. The objective of the club for each member is to deposit cash and buy and trade in an equivalent amount of bitcoins and other digital currencies. One bitcoin costs over US $6,000 today. A portion of the gains generated by trading in bitcoins net of any and all losses, costs and commissions is paid out to the club.
Why have digital currencies become popular? Are they investments? What are the risks?
Bitcoin is the most popular of digital currencies and has been around since 2009. Digital currencies are unregulated by governments (though some governments have approved exchanges and funds to trade these currencies) and exist only on internet networks.
They have become popular in some segments of the global economy because they provide complete anonymity to financial transactions since no banks are involved. But the reality is that it there is no particular advantage to using digital cash over regular online method of payments (paypal etc) for regular commerce or for legitimate money transfers. The real benefit of digital currency comes to those seeking to avoid government or tax scrutiny, fund terrorist or criminal activity or launder money.
All the hype therefore is around the spectacular price rise and the speculative gains that bitcoin has provided extreme risk takers. The price of one bitcoin has grown from US $10 in October 2012 to approximately US $4,200 today. But the price of Bitcoin is very volatile. It rose to $1,000 in November 2013 then dropped to $200 a few months later before rising and falling over and over until it reached $1,000 in March 2017 and then jumped to $4,200 in September and to $6,000 in October.
The value of digital coins is impossible to ascertain and for individual investors the best course of action is to avoid owning or trading these currencies because for now it is akin to trading a mirage!

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