Cryptocurrency markets continued to experience volatile price movements on Thursday (20 May) triggered by negative news including China's latest regulations.
According to CoinMarketCap, around $794bn worth of cryptocurrency was lost within less than 24 hours at close of play on Wednesday 19 May.
Rick Eling, investment director at Quilter, has set out questions investors should be asking themselves before buying speculative assets:
Getting rich slowly is a far more effective way of growing your money and giving you stability in your future life."
"Bitcoin's current woes should serve as a strong reminder for investors to always interrogate rigorously why we are interested in investing in something in the first place. As has been the case with Bitcoin, many people have been tempted to invest purely because it has gone up in value and they have a fear of missing out", he said.
However, if this is the main reason for investing then people need to stop right there and ask these key six questions below, he argued.
• Doesn't that just mean it's more expensive now than it was a while ago?
• Why am I wanting to buy a thing because its price is higher? In what other area of life do I do that?
• If I say that the recent price rise means that even higher prices are coming, then what's my evidence for that?
• If I believe that I will buy it now and then sell it for even more later, then who do I think will buy it from me for that higher price and why?
• If this asset is so great, then why was I not looking at it when it was much cheaper?
• Have I convinced myself that I am in some way "in the know?"
Eling added: "Often people will not have the answers to these questions, and certainly will not have knowledge of where prices will go from here. Bitcoin is a volatile asset, and as we have seen so often in financial markets boom is almost always followed by bust.
"Getting rich slowly is a far more effective way of growing your money and giving you stability in your future life. Diversified, multi-asset portfolios will guard you against violent swings in asset prices and ensure your long-term objectives are achievable.
He also said: "Bitcoin will not do this and the logic for investing in it is not sound. If we say that Bitcoin is a currency, then it must get to a point of broadly stable value in order to function as a currency. Successful currencies do not have wildly fluctuating values such as this. But if we also say that Bitcoin will "make us money" then it can't also have a stable value. We reach a circularity.
"In other words, the premise on which people claim Bitcoin has long term value (that it will become an accepted currency) argues against its future growth potential. Those who have made money from cryptocurrencies have much more luck than they do skill."