Bitcoin…Fools Gold?

Most investors are familiar with “Tulip-mania”, the first detailed speculative bubble that ended in collapse in February 1637.

Source: Wikipedia

“Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay in 1841 is a detailed account of Tulip-mania. Its thesis was the Dutch public engaged in an irrational speculative frenzy. Investors are meant to be rational when making investment decisions. But behavioural finance also holds that investors can be irrational on rare occasions. This is tacit recognition that “bubbles” can occur.

The above graph is special, it is the first time plot of a “bubble” i.e. a period when the price inflates and moves away from fair value before eventually deflating spectacularly. The “Sempre Augustus Tulip” price returned to fair value on May 1st 1637 after a period of 169 days.

So far 2017 has seen a multi-billion dollar popular frenzy over “Bitcoin”. “Bitcoin” was the first cryto-currency. It is not a currency in a traditional sense of a promise to pay issued by a central bank. There are a fixed 21m bitcoins in issue. We are told no more can be issued. It is an unregulated evolving “ledger currency” that can be used for some online transactions.

Is the Bitcoin phenomenon a function of quantitative easing and a loss of confidence in central bank policy? Zero interest rates? Is it a global investing public getting excited about crypto currency as a new investment class? Is it primary function for settlement for criminal activity/ money laundering? Is it a bubble? Is it a composite of all these things? Many questions, but few answers.

Central banks are now coming forward with answers. On 5th September 2017, the Chinese government banned initial coin offerings – the People’s Bank of China ruled the unregulated sales of crypto-currencies via “ICOs” (“initial coin offerings”) violated Chinese securities laws and must stop immediately. This reflected concerns in the Far East that the technology essentially amounted to a “pyramid scheme”. The central bank was thought to be concerned also that the proliferation of these ICOs were scams aimed at the gullible investing public. The move hit Bitcoin hard, its price fell from $5,000 to as low as $4,000 a 20% decline in three days. The drop was compounded by a statement from the socialite Paris Hilton that she was investing in an ICO!

Investment vehicles purporting to invest in crypto-currencies have attracted the full gamut of “boiler room scams”, i.e. unregulated firms containing salespeople ringing up offering “carbon credits”, plots of land without planning permission, binary options to retail investors. This crowd has moved onto crypto-currencies. The Telegraph (11th August 2017) reported that the police had shut down a fraudulent cryto-currency business in the City of London after it was found cold calling investors and attempting to sell them fake online money.

The recent “Wanna Cry”cyber-attack on the UK NHS IT systems and the hackers’ demand for Bitcoin ransom payments is clear evidence of the appeal to the criminal underworld. BTC-e a major exchange that was closed in July 2017 has been accused of laundering $4bn in Bitcoin since its launch in 2011.

Despite the bad press there appears to be little oversight and management behind Bitcoin. If you print your own money, that is a crime. But who precisely ensures the Bitcoin is not manipulated by the wrong people?

The first port of call is a visit to the Bitcoin website. This is at The image below is the on home page.

The Bitcoin website says only 21m Bitcoins exist. This major point is the peg on which the Bitcoin coat hangs. Purchasers are relying on this as proof that it is not subject to normal money supply factors. We are led to assume the bitcoin cannot be inflated away.

Sometimes you must suspend both disbelief and critical faculties. Assuming you can afford it, it is okay to gamble on Bitcoin, the important thing is to know you are gambling. With this state of mind you accept the investment is 100% at risk. I am not going to get into the rights and wrongs of Bitcoin, its history, its potential trajectory. It does appear to exhibit some “bubble” traits but whether or not it is, is not a “bubble” we will only know after a price collapse.

Due to its nature as a crypto currency (it can be used for blockchain type transactions) it would be wrong in our view to “recommend” Bitcoin. All we will venture is How to invest in Bitcoin….we maintain the desirability of doing so is a decision for the investor. We also suggest visiting for more detail on Bitcoin and other crypto-currencies.


XBT PROVIDER AB is a Swedish company (Sweden domiciled) offering a “Bitcoin” tracker fund that is structured as a Euro (€) demoninated exchange traded note (ETN). Launched in May 2015 the ETN can be held in SIPP and normal trading accounts.

The note is structured as a normal synthetic trading instrument, i.e. it is bought and sold on the OMX Stockholm exchange as an exchange traded fund. Each note represents a 5% stake in 1 Bitcoin. The note can be traded on numerous online platforms with a low spread. The ETN structure is transparent and represented by a specific number of Bitcoins. There is no leverage in the ETN structure.

The main advantage of using this ETN is the ability to invest smaller amount than the US$4300 odd price of 1 Bitcoin – it allows the ability to invest in far smaller amounts.

This “investment” cannot be approached from the standpoint of conventional investment analysis. It is entirely in the eye of the beholder.


My view is retail investors should stay away from unregulated crypto-currencies in general as these remain in an evolutionary state and there are simply too many unknowns.

Subscribe to our Award-winning Newsletter

We provide daily market data in the form of our award-winning newsletter, The Morning Call and The Market Close.
You can subscribe to this information at any time to help you make the most of your investment.

Quick Sign-up

Important Information

Key to Material Interests:

Please be aware that the following disclosures of Material Interests are relevant to this research note:

XBT Provider AB Bitcoin Tracker ETN – Relevant disclosures:   <NA>

  1. The analyst has a personal holding in the securities issued by the company or of derivatives linked to the price of the company’s securities.
  2. Collins Sarri Statham Investments Ltd has clients who hold either shares or CFD positions in this security.

Analyst Certification:

The report’s author certifies that this research report accurately states his personal views about the subject securities, which is reflected in the ratings as well as the substance of the reports.


Collins Sarri Statham Investments Ltd (CSS) does not in any of its publications take into account any particular recipient's investment objectives, financial situation, and specific needs and demands. Therefore, all CSS publications are, unless otherwise specifically stated, intended for informational and/or marketing purposes only.CSS shall not be responsible for any loss arising from any investment based on a perceived recommendation.

No publication (including recommendations) shall be construed as a representation or warranty that the recipient will profit, nor avoid sustaining losses, from trading in accordance with a trading strategy set forth in a publication.

This research is non-independent and is classified as a Marketing Communication under FCA rules detailed in their Conduct of Business Rulebook (COBS). As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition of dealing ahead of the dissemination of investment research outlined in COBS 12.2.18.

Risk Warning:

Trading in the products and services offered by Collins Sarri Statham Investments Ltd (CSS) may, result in losses as well as profits as the value of investments may go down as well as up. You may not get back the full amount you have invested. Any reference to past performance should not be viewed as an indication of any future performance. Investments held in overseas markets are subject to the effects of changes in exchange rates which will impact on the value of the underlying investment. Investments made in AIM and penny shares carry an increased risk due to the difficulty in creating a market in these shares. There may be a substantial difference in the buy and sell price. Leveraged products such as Contracts for Difference (CFDs), derivatives, commodities & Foreign Exchange (FX), carry a higher risk to your capital. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider (Saxo Bank). You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products.

Speculative Trading is not Suitable for all Investors

The information contained herein is based on materials and sources that we believe to be reliable however we make no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Please note that the figures shown may, in some instances, be rounded to the nearest penny. Prices can move sharply from those quoted in this document. Current prices can be verified by calling one of our brokers. CSS is under no obligation to update the information contained herein. Neither CSS, nor its affiliates, nor its employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from the use of this document.

Get Started with CSS

Open an Account

Subscribe to our award winning daily newsletter

Voted "Best Market Newsletter" in 2012, 2014, 2015 and 2017 by the City of London Wealth Management Awards

Subscribe to our newsletter (Popup)

By signing up to our free email, you are consenting to receive these promotions. The newsletter is sent up to three time per day during the week and up to once per day over the weekend. The newsletter contains company news, market movements, CSS research and promotions and breaking economic news. Occasionally our newsletter will contain advertisements from trusted partners. However, we will never give, sell or rent your email address to any other companies. If you want to stop receiving our free emails you can unsubscribe at any time by clicking on the link at the bottom of each email. You can read our privacy policy here.

No, thank you