Friday 06 January 2017 1:24 am

Buyer, beware: Bitcoin collecting could dig a hole in your pockets

The rally in bitcoin over the past week, culminating in its rise to a three-year high yesterday, should provide vindication to policymakers in the UK over their approach to the cryptocurrency.

For while other governments have adopted less-than-welcoming approaches to the technology, the UK was embracing it wholeheartedly.

As bitcoin began to grab headlines in the early part of this decade, Bolivia banned it outright, branding it a “danger” to its existing currency. Meanwhile, New York’s financial regulator created BitLicenses – rules governing bitcoin startups which were so onerous, the city’s hopes of turning itself into a global bitcoin hub are said to have faded altogether.

But in the UK, then-chancellor George Osborne took a different approach: he earmarked £10m to research Bitcoin as part of his Budget in 2015. That was a few months after the Financial Conduct Authority had launched a fast-track initiative, enthusiastically titled Project Innovate, aimed at encouraging businesses associated with cryptocurrencies and blockchain technology. In April last year, paymaster general Matt Hancock (now minister for digital) even went as far as to say the government was exploring how to use blockchain, the technology behind bitcoin, in taxation.

The government and the Bank of England’s focus on cultivating startups involved in the technology, rather than legislating against them, has led some to suggest London is poised become the bitcoin capital of the world. We should be proud of that.

And what better time to celebrate than this week, when it rose to $1,150 – its highest point in three years, after it peaked at $1,165.89 in November 2013. It was an astonishing u-turn for a technology which had been all but written off by some of its former fans, having fallen as low as $200 in 2015. This year’s rally follows a year during which bitcoin rose 125 per cent, with the Winklevoss twins – of “Mark Zuckerberg stole our Facebook idea” fame – dubbed it “better than gold”.

But the sharp fall which followed yesterday’s rally should act as a cautionary tale to would-be investors. Having peaked around 1pm UK time yesterday, bitcoin plummeted 19 per cent, losing $180 in value. Such a drop suggests bitcoin is not yet mature enough for anyone but the most adventurous investor. Buyer, beware.