Bitcoin has proven to be a risky investment opportunity over the years, epitomised by the cryptocurrency’s recent fluctuation in value. In early January, its value reached a record high before enduring its worst decline since March last year, dropping by around 20 percent in just two days. Bitcoin’s value is currently at around $30,000 (£22,000). Despite its inconsistencies, many former hedge fund heavyweights have tipped the cryptocurrency to reach a value of $1million, including former Goldman Sachs chief Raoul Pal.
He has allocated more than 50 percent of his capital to Bitcoin and argued that prices could breach the lofty value in five years.
He argued that many institutional funds will adopt the digital currency as the economy will take time to recover from the coronavirus pandemic.
With Bitcoin remaining a relatively niche asset, Giles Coghlan, chief currency analyst at HYCM, told Express.co.uk what would need to happen for Mr Pal’s prediction to come true.
He also offered a more cautious view on Bitcoin, saying the cryptocurrency is just as likely to be a route to losing your money as it is to winning big.
Mr Coghlan said: “About 90 percent of the 21 million Bitcoins that can be mined have been mined, so the supply limit to Bitcoin means it has potential to rise if more and more people become confident in Bitcoin.
“Bitcoin would have to be able to be transferred between citizens of every country, it would need a wide-scale adoption.
“You’d need to be able to pay your taxes in Bitcoin, we’d need to see a much greater take up of Bitcoin.”
Mr Coghlan highlighted barriers that could prevent Bitcoin reaching this level of adoption however.
He said that while the coronavirus pandemic has highlighted the advantages of digital currencies, ultimately this is cancelled out by the development of digital transferals of traditional currencies.
He added: “I think the advantage of transferring Bitcoin has gone now we can exchange current currencies so easily with small fees.”
Mr Coghlan also stressed the risks of investing in Bitcoin.
He continued: “When you see an asset and think, ‘Wow this can only go one way’ – that is a recipe for either making a fortune of losing a fortune.
“What I’d say is yes, you can invest in cryptocurrencies. I would advise all clients against using heavy leverage and manage their risks.
“Know exactly how much of your capital is at stake at any one time and have a clear exit plan.
“In my line of work you see people do disastrous things if you don’t understand how leverage works, which is the use of borrowed money to take on greater risk.”
Bitcoin ‘will surge to value of $1million’ expert predicts [INSIGHT]
Bitcoin ‘will reach £73,000 value by end of 2021’ in startling claim [ANALYSIS]
Bitcoin uproar as investors warned of ‘rapid collapse’ in value [INSIGHT]
Britain’s Financial Conduct Authority (FCA) warned investors of the risks that come with Bitcoin following the recent slump.
They said: “If consumers invest, they should be prepared to lose all their money.
“Some investments advertising high returns from crypto assets may not be subject to regulation beyond anti-money laundering.
“Significant price volatility, combined with the difficulties valuing [Bitcoin] reliably, place consumers at a high risk of losses.”
Express.co.uk does not give financial advice. The journalists who worked on this article do not own Bitcoin.