Despite plummeting cryptocurrency values, the craze for all things bitcoin, it seems, shows no signs of disappearing any time soon.
“It’s like a clearance sale, it’s like going shopping after Christmas,” says student Akef O’Dwan, a keen investor who sees the current weakness as an opportunity to buy more cryptocurrencies.
In spite of the myriad warnings, investors across the State have not lost their love for crypto. Just last month, a new crypto cafe opened on Dublin’s Aungier Street, attracting crypto and blockchain aficionados. One customer tells a story of a friend who bought at $37 and sold at $18,000, netting a $250,000 profit in the process.
It is tales such as these that fuel the hype on crypto and bring in ever more investors, searching for the high of treble digit gains – and sometimes more.
"Previously, I would have described cryptos as 'shares on steroids'; now I would say they're shares with jetpacks and boosters and then some," says Nicholas Charalambous, managing director of Cork-based Alpha Wealth.
Since 2009, bitcoin has soared from just about $3 to a high of some $19,800 in mid-December. However, it is a cautionary tale: bitcoin slumped to less than $6,000 in early February, although it has rallied since.
And bitcoin is not the only game in town. New cryptocurrencies are launched almost daily, with litecoin, ethereum, ripple, putincoin and dogecoin just a few of the estimated 1,400 or so now available for investors.
There are many proponents of the new currency – such as software guru John McAfee, who predicts bitcoin will hit €1 million by 2020. Others are more than bearish on investment prospects, likening it to a bubble, or a Ponzi scheme.
Jonathan Sheehan, managing director of Compass Private Wealth, says crypto is "not an investable asset class".
“It has the exact same risk and return characteristics as a naive gambler, who has opened their first online betting account. There is absolutely no valuation metric for these currencies and allocating capital to them is an extreme and unnecessary risk,” he says.
Economist Nouriel Roubini, also known as Dr Doom, who called on Ireland to burn the bondholders back in the financial crisis, said recently that bitcoin was starting to look like "a dinosaur on the way to extinction", and said its price would crash to zero.
For "cryptopreneur" Vivian Callaghan, who trades and invests in cryptocurrencies, it's the technology behind the coins that's important.
“Absolutely, there are some who say it’s a bubble, but it’s my belief that, if they understood the technology, they wouldn’t be saying it,” he says, adding that it’s still “a very young” industry, and people need to do their research before investing.
“If you do it on a whim, there’s a strong risk you’ll lose money,” he says, adding that regulation is needed in the sector.
Charalambous has seen a “huge interest” in crypto, noting that while it has dissipated in recent weeks as currencies dropped, it’s still unlike anything he’s seen before.
He describes the current trend as being dominated by “Joe Soaps”, or ordinary people who may never have invested before. And while some of them are risking small three- or four-figure sums, others are putting eye-watering amounts into cryptocurrencies.
How to buy it
Typically, the rookie cryptocurrency investor will seek out a platform such as Coinbase, which offers investment across four currencies, or Bitsquare, or Bitstamp. But with more than 1,000 currencies now in play, exchanges are popping up at a rate of knots.
“Some of them are very expensive, and sometimes people don’t realise that,” Charalambous says, adding that some will charge as much as 5 per cent to sell and 5 per cent to buy.
Coinbase has a charge of 1.49 per cent of your investment if you buy via an electronic transfer or 3.99 per cent with a credit or debit card.
Localbitcoins is another option. It’s a platform that allows you to seek out local sellers of bitcoin and buy it with your euro cash at an agreed exchange rate. When we visited the site, there were two Dublin-based sellers of the currency, one of which required a €1,000 minimum purchase.
Charalambous used Coinbase when he decided to try and increase his knowledge of the trend by putting $1,000 (now down to $600) of his own money into bitcoin, litecoin and ethereum in mid-January. He did it, in part, to educate himself, but also as an investment.
Charalambous made his allocation via an electronic transfer, but of course this could take up to three days to clear – by which time, in the world of cryptocurrencies the price may have shifted considerably.
However, this or Paypal may soon be one of the only options. A host of British banks have just banned purchasing crypto with your credit card, fearful of investors running up sizeable debts on their cards which they can't repay as the value of the currency slides.
Irish credit card providers have not followed suit yet. Ulster Bank says it accepts credit cards for cryptocurrencies, while Bank of Ireland says it does not restrict it, but "would take action where we see an unacceptably high risk to our customers".
AIB says it is "monitoring the development" of these currencies, but says that customers can still use their credit cards to make purchases, while Avantcard "do not currently prohibit the purchase of cryptocurrencies".
However, some banks may treat such purchases as a “cash” credit card transaction. This means they would go through a more rigorous risk process than a straightforward credit card purchase, and you will be faced with higher “cash” charges.
Interestingly, it’s not just banks that are wary of people buying with credit cards, or even Paypal. So, too, are the cryptocurrency platforms, which fear banks will “charge back” sums spent on credit cards.
Bisq, for example, says it only “supports payment methods in which chargeback is not easy”, so it rules out both Paypal and credit cards.
For many investors, one of the perceived strengths of cryptocurrencies is that they are easy for everyone to access. O’Dwan, a 19-year-old politics student, first got into crypto investing last year.
He bought litecoin at about $90 and sold some at more than $300, netting himself a tasty profit. He continues to hold more than 20 coins.
He puts 60 per cent of his part-time earnings into bitcoin, and the recent downturn in the market hasn’t phased him in the slightest. His goal is to hold for the next 12 to 24 months with the aim of turning his coins into a portfolio of $50,000 or so and to use his gains to buy a house.
For him, the accessibility of cryptocurrency is what makes it different.
“What’s cool about this is . . . anyone, no matter how young or old, can be a part of it,” says O’Dwan. “Shares are for people who have the money already.”
Having said that, he doesn't think it's necessarily for everyone, and shows a sharp awareness of what impacts price movements, such as the recent Securities and Exchange Commission hearings.
“If you don’t understand the technology, you’re wasting your time,” he says. “You can’t really set expectations in this market. It’s addictive.”
There’s a saying among bitcoin investors: “You can tell how much someone has invested in bitcoin by how often they check their phone.” Given the rapidly moving prices, an investor can run the gamut of feelings – from millionaire to a pauper – in the space of a day or two, and so the temptation to keep checking prices can be difficult to keep in check.
When Charalambous first started looking into it, he too was gripped by the desire to check prices. “It was getting to a point where I was looking almost hourly,” he recalls.
Initial coin offerings
Having already mutated into more than 1,000 coins, cryptocurrency is moving into the realm of flotations, with initial coin offerings (ICOs) raising money by issuing coins or tokens.
Last November, the Central Bank issued a warning on such issuances, urging putative investors to be aware that they may be "vulnerable to fraud", bear a "high risk of losing all invested capital", and may have a "lack of exit options".
Nonetheless the market appears to be flourishing. Another element is network marketing, with schemes such as dascoin, a hybrid cryptocurrency. Investors buy a licence, with investments starting at €100 and running to €25,000, and receive commissions based on the number of members they recruit.
The company behind it says it’s on the brink of being “the first ever mass-adopted cryptocurrency”.
Charalambous has put $5,000 of Alpha Wealth’s money into this coin, having been “introduced” to the concept by a friend. It’s going to ICO on April 28th, but many are wary of what dascoin promises.
For now, the cryptocurrency craze may call to mind the famous Warren Buffett quote: “It’s only when the tide goes out that you learn who’s been swimming naked.”
“It’s like backing a horse,” sums up Charalambous, “but some people may be better off not being in the race at all.”
What about tax?
Just because you’re making your money in the digital space, it doesn’t mean you can avoid tax. According to the Revenue Commissioners, if you have a gain on cryptocurrency, it will be subject to capital (CGT) gains tax, at a rate of 33 per cent.
As with other investments subject to CGT, the first €1,270 of your annual gains are exempt from tax, while if you have a loss, you should be able to offset this against tax on other gains.
Tax authorities are increasingly cracking down on investors in this space. Revenue says it is already using “advanced analytics” to track down investors who aren’t not declaring tax on their gains, which includes getting information on user’s behaviour from other EU member states and other third-party data sources, cross-checking their prior tax returns, as well as tracking publicly- available information from peer-to-peer cryptocurrency marketplaces.
Not only that, but Revenue is also tracking down investors' Twitter, Facebook and Instagram accounts, so if you're boasting about your gains on social media networks, you might end up getting a call from Revenue.