Bitcoin was supposed to be $US100,000 by the end of 2021 but like most things speculative, the 'experts’ got it wrong! As Bloomberg points out: “Bitcoin dipped below $US40,000 for the first time since September, putting it on pace for its worst start to a year since the earliest days of the digital alternative to money.”

Bitcoin AUD

The current Aussie price is $59,441 but it was close to $40,000 in July last year, so there is good reason to believe that it could be $40,000 again, though it did rise 2% overnight.

This price slump puts pressure on me personally, as I’ve recently toyed with the idea of giving Bitcoin a go if the price slipped back to $40,000 but that said, I’m sure I was thinking Aussie dollars, so I still might have time to take the punt.

Of course, in the heady world of stocks, currencies and higher risk investments there is often a chorus of over-invested players who have a vested interest in talking up certain stocks or investor playthings because it enhances the value of their already purchased holdings, when others become believers, risk their money and help drive up the price.

Don’t get me wrong I don’t believe Bitcoin will disappear and one day might hit $US100,000 but I just can be confident on what drives the price in the short- to medium-term and so I’ve decided to skip it and the other cryptocurrencies out there, at least for the time being.

For those wondering why I would entertain the idea of investing/speculating in Bitcoin, here are a few reasons:

• It has gained almost 500% since the end of 2019;

• There is a limited supply;

• There’s a group of enthusiasts — techies, high-risk investors and criminals —who are believers; and

• Some really smart investors say you should have 1% of your portfolio exposed to this new age darling of the investing world.

However, not all investing giants love bitcoin. Here’s Warren Buffett’s partner and mento Charlie Munger’s take on bitcoin: “Bitcoin is just dementia. It's like somebody else is trading turds and you decide you can't be left out."

Here’s why you should be wary about bitcoin:

• Governments and central banks don’t like the tax-dodging aspect of cryptocurrencies and one day there will be official digital currencies that could compete with existing, unregulated cryptocurrencies.

• Central banks will start raising interest rates and will reduce liquidity as economies grow out of the Coronavirus problems and this will hurt risk assets like bitcoin.

• Bitcoin tends to track with tech stocks and they are out of favour now.

• Fiona Cincotta, senior financial markets analyst at City Index: “There’s a lot going on. We know that Bitcoin is volatile but even for Bitcoin, we’re seeing some really big moves.”

• As Bloomberg points out: “The Covid-19 pandemic helped Bitcoin break further into the mainstream as institutions and retail investors move.” However, as we return to a more normal life some of this enthusiasm for risky investments could be less attractive.

To sum up there are two believable views on Bitcoin and it’s why I can’t get mad keen to be a buyer.

The first is very negative. “Cryptocurrencies are likely to remain under pressure as the Fed reduces its liquidity injections,” said Jay Hatfield, chief executive of Infrastructure Capital Advisors. “Bitcoin could end 2022 below $20,000.” Wow!

But there is a positive take too. Mike McGlone from Bloomberg Intelligence argues that “$40,000 is an important technical support level. Cryptocurrencies are a good barometer for the current reduction in risk appetite”.

He thinks as the world embraces digital currencies Bitcoin will retain a lot of fans. Meanwhile, Noelle Acheson, head of market insights at Genesis Global Trading, thinks the Bitcoin slide can be blamed on short-term traders wanting to take profit and her research says long-term holders are “buying the dip”.

Bitcoin reminds me of some hard to love modern art that no normal person would spend $200 on but art lovers splurge tens or hundreds of thousands of dollars on — even millions!

I guess as long as there are believers who will pay these apparently crazy prices then there is an opportunity to make money. That said, I’ve invested most of my life based on the rule: “If I don’t understand it, I don’t invest in it!” And I can’t see why I should dump that rule for Bitcoin, just yet, unless I want to call any money put into it gambling rather than investing.

I don’t think Bitcoin is cooked but it could feel the heat of volatile markets this year.