Who wouldn't want to be the next Kristoffer Koch? In 2009, the young Norwegian engineer invested $27 in a little-known virtual currency called bitcoin and promptly forgot about it. Four years later, Koch discovered that his 5,000 bitcoins were worth some $900,000.
Only a fraction of online retailers worldwide currently accept bitcoin, as do far fewer bricks-and-mortar shops. But that is changing, slowly but surely, led by the likes of Microsoft and Dell, which now accept bitcoin as a payment option for a limited number of digital content and products.
Even as it becomes increasingly mainstream, the main thing people "buy" with bitcoin is, in fact, cash. And buy they have, nearly tripling its value over just the year to date. Meanwhile, several hundred other digital currencies have entered circulation, including Ethereum, valued at $35 billion in mid-June, compared to bitcoin's market capitalization of $43 billion.
Moving forward, will such "initial coin offerings," or ICOs, become everyday occurrences in the increasingly virtual global marketplace? Or will one or perhaps two cryptocurrencies dominate worldwide e-commerce?
While the potential of the underlying technology is vast, bitcoin remains extraordinarily volatile: increasing by 12%, then plummeting by nearly 30% over the course of a single day in May, the virtual currency is simply too risky for nearly every investor.
Robert Greil serves as chief strategist at Munich-headquartered Merck Finck, a member of KBL European Private Bankers, which operates in the UK under the name Brown Shipley.
