Listen: Should investors buy Bitcoin?
FT Money presenter Claer Barrett and guests discuss whether or not Bitcoin deserves a place in your investment portfolio and why restaurant service charges leave a bad taste in the mouth. Finally, why we might all be renting used cars in the future instead of buying.
Presented by Claer Barrett. Produced by Lucy Warwick-Ching. Edited by Paolo Pascual.
Does bitcoin deserve a place in your investment portfolio? We look beyond the gyrating price and question what could happen next. Here's a topic to debate at the staff Christmas lunch this year. Should we get rid of service charges on restaurant bills? Paul Lewis, the BBC MoneyBox presenter, joins us for a festive whinge.
And shorting the used car market, my colleague, the Lex writer, Alan Livsey, updates us on his decision to rent a car rather than buying one. Welcome to "The Money Show," the FT's weekly podcast about personal finance and investing.
I'm Claire Barrett, FT Money Editor, bringing you this week's money news. Unless you have been hiding under a rock, you cannot fail to notice the gyrating price of bitcoin. The cryptocurrency was once the domain of coding geeks, associated with hacking, and the dark web, but has now broken into the mainstream and its soaring price means it's attracting the attention of private investors, speculators, and regulators. Are you tempted to join in? Well, joining me now in the studio to discuss is Hannah Murphy, the FT reporter who has been closely following the bitcoin story. Welcome, Hannah.
So first of all, for the completely uninitiated, can you tell us briefly, what is bitcoin, and how does it actually work?
The simple answer is it's a virtual currency, which means there's no physical asset. You have to buy it and sell it online only. And just like the internet, it's completely borderless. Unlike everyday money, it's decentralised, which essentially means it's not issued or guaranteed by a central bank. So it cuts out that middleman, and I think that's why it's sort of attracted, for example, activists, people who've lost faith in financial institutions after the crash.
Instead, it's generated by computers, a process known as mining. And all of its transactions are recorded on this sort of database known as a ledger, which is called the blockchain. And while you can't change anything on the blockchain, it can be converted into real world money completely anonymously.
So this will be why it's sort of been linked to criminal activities, such as money laundering, drug dealing, et cetera. This sort of anonymity that's afforded to its users. So there is sort of some retailers who accept payments in bitcoin, some merchant transactions. So I think I've seen around these trendy cafes, which bitcoin cafes you can buy your coffee in bitcoin.
And I think I was reading about sort of in Dubai, there's property companies that you can buy a house in Dubai in Bitcoin. But by and large at the moment, as you said at the beginning, sort of linked to, it's more of an investment product for speculators.
Brilliant. Fantastically succinct explanation. But why are investors getting so excited about its potential? I mean, we've had bubbles before. We had Tulipmania in Holland. And it really feels like with the recent price spike upward, like a hockey stick. Like one of your commentators has said, this is a bitcoin bubble.
In my reporting, I came across two types of investor, by and large, those who want to make money from it right away, and as the prices started to come up, the speculators who have got this sort of fear of missing out attitude. They've sort of been sucked in perhaps over the last six months when you've seen price rises, an unfathomable 900%.
And certainly, I've met people who've made a lot of money. One of the guys who I spoke to for the piece had a portfolio of different cryptocurrencies. Bitcoin is one of many, and he would simply monitor them using YouTube, Twitter feeds dedicated to cryptocurrencies. And in each case, just buy the dip, spread the risk, and buy the dip on each cryptocurrency as it fell.
I think that attitude is quite different from the sort of long-term investors, some of those people who've been in the game a bit longer. It seems to attract the sort of type of obsessive, who has this sort of deep held belief in the potential of the technology behind it, this blockchain technology that underpins it, and those people who think that one day technology will be used for sort of all retail payments, e-commerce, to make payments sort of across borders without the charges that central banks might levy on any interference.
Seems a reasonable assumption, doesn't it?
Yeah, and without some of the delays in the current banking system.
So I mean, clearly, there is an argument for investors to be interested in the technology, even if they want to speculate in the price of bitcoin. But if you're crazy enough to want to have a go, how could you go about it? And for people like the person you spoke to in your article who have invested, how can they get their money back?
There are a couple of ways. You can buy and hold it on an exchange. These exchanges are more than 400 that have come up over the years, these online exchanges. Bitstamp and Coinbase are among the largest. Because it's an unregulated market and fairly amateur, the prices can vary from venue to venue. The fees can certainly vary from venue to venue. And there's a risk that if you are holding that bitcoin on that exchange, if it is hacked because the exchange is unregulated, you might not be able to get your money back. And there are some quite significant examples of this happening in the past.
In terms of getting your money out, what we've seen as the interest has gone up recently is sort of a rush for the exit, and some of the sort of systems of these exchanges beginning to seize up, beginning to creak under the weight of heavy traffic, for example.
Other than buying bitcoin itself via an exchange, can investors gain exposure in any other way?
So there are these online spread betting companies, such as - the big players are IG Group and Plus 500, which allow you to bet on the price movements of bitcoin without actually having to own the underlying asset. So this means you can go both long and short, and also offer leverage so you can magnify your gains. But also this magnifies any losses that you might have, which is particularly risky, given it's still a very volatile and a liquid asset.
General trajectory has been upputs, but there has been wild swings over the past few weeks. On the plus side, they're a regulated venue so they offer more investor protections than the exchanges do.
Well, thanks very much there to the FT's Hannah Murphy. You can read her full article, "Does Bitcoin Deserve a Place In Your Investment Portfolio?" in the Money Section of the FT newspaper on Saturday, or online from Friday at FT.com/money.
Eat, drink, and be merry or miserable. Many of us will be heading out to restaurants for festive celebrations in the coming months, which should be a cause for celebration, but Paul Lewis, our columnist and BBC Money Box presenter is rather down in the mouth about service charges that might appear on our bills. He joins me now on the line. Welcome, Paul.
So what have you got against service charges in restaurants?
Well, oh, any number of things, really. I mean, I think this is a really great VAT restaurant VAT scam, because, first of all, we pay some of the costs of the staff by adding this service charge on, so they don't have to pay their staff the full amount, so they don't have to recover that on the menu. But what that means is, because we pay it allegedly voluntarily, they're paying no VAT on those staff costs, whereas if they just put the prices up, of course, they would be paying VAT. So the restaurants are avoiding some of the VAT.
But secondly, the thing that really got me going on this, and I put it into my spreadsheet, as I do, and what was going on, is that the service charge is applied to the whole bill, including the VAT. So basically, I'm paying a service charge on the VAT. Now in my case, that was 89 pence on a 40-odd pound bill. But why should I pay a service charge on them doing their VAT accounts?
Well, it's a very good example. Readers who have taken you to task slightly online already, I have to say, today say, is it really worth bothering about such a small amount? So I suppose, playing devil's advocate, are you being a bit of a Scrooge.
No, no. Not at all. I mean, I don't mind paying an extra 89 pence. In fact, my solution is they should charge the proper price, pay the staff properly, and then I would end up paying more than a pound extra for that meal, which is fine. But it's all done openly and above board. And 89 pence isn't much for me on a single meal, that's absolutely true.
But think of the millions of people having meals out, probably every week, and certainly over the next few weeks, as you said. That is millions of pounds that we're paying to the restaurant as a service charge that, really, it's added on to the VAT costs that they keep. And then, of course, there's the fact that they're avoiding VAT by not putting all these costs into their general pot, and then paying VAT on it. So I just think it's dishonest. I think there's a much more honest way to run a restaurant.
It leaves a bad taste in the mouth, you might say.
Well, it does indeed. Yes.
So one of our readers has already commented online that he thinks that restaurants are guilty of far bigger financial crimes, such as the mark-up they charge on bottles of wine. He writes a five pound bottle of wine is commonly sold for 20 quid. But you don't see a pint costing 12 pounds.
Well, that is perfectly true. The mark-up on wine particularly is scandalous. So I don't think even I would call it a crime, but it is scandalous. But there are plenty of bigger things that you should get worked up about. But I think service charges for one. We don't have to drink wine, not everybody does drink wine. We can choose not to drink wine. Service charges are, in theory, voluntary, but you know what they do? They add it on automatically, 12 and 1/2% in this case.
You pay by credit card. They give you the machine. It's already there, that extra 12 and 1/2%. Or if it isn't, they give you a choice. Do you want to pay 10%, 12 and 1/2%, and or 15% service charge? The rate is there, and you have to sort of say, oh, I don't want to pay anything, thank you very much, and then rather meekly look at them and say, sorry, I'll give you some cash, which is what I tend to do.
So there are worse things that go on in all businesses I'm sure. But I just think this is one example which should be sorted out. Sort out service charges. Make them genuinely voluntary. If I want to add a couple of quid on - put a couple of quid on the table, that's fine. But make sure I pay the full cost of what the restaurant pays, and make sure the staff are paid properly without charity from its customers.
Well, some festive food for thought there from Paul Lewis. Thanks very much, Paul. You can read his column in the FT Money Section this weekend or online now at ft.com/money. You're welcome to add your comments to the debate. Shorting the used car market was how the Lex writer Alan Livsey summed up his decision to rent a car rather than buying one. He wrote about that decision in FT Money earlier this year, and he has returned to our pages and our podcast this week with an update. Welcome, Alan.
So run us through the methodology of your original decision to rent rather than buy a car.
Well, the idea was, A, I was in the market for a car. It didn't have to be a new car. But I also noted that any deals, anything I wanted to do, was going to require some sort of big deposit, either pay for the entire car, or on some of these higher purchase schemes, the PCP, the dealers want you to put up a reasonable-sized deposit, and it just didn't suit me.
And on top of that, I thought, well, there's going to be a lot of used cars coming off of these leases.
Because everyone's been doing a PCP on my street.
Everyone's been doing it. It's a large chunk of the market, well over 50%, and some form of lease. So what's going to happen? I thought, well, I'll wait that out by renting in a long-term rental, what is called a PCH, a personal car contract hire. It's just basically a long-term rental.
So that's what I'm doing. I got a new car. I'm renting it. People wrote in and said, you're crazy. That's not how to do it. But other people agreed. And so it was a point of debate.
And you've basically been finding out through your predilection to leasing that a new method may be coming along, whereby this huge volume of new cars, which eventually one day will become used cars, could be hired out rather than resold.
Exactly. I think there's new products that are coming, because I thought, well, what are they going to do with all these used cars? If you're a company that finances and rents these cars out, essentially a big kind of banking concern, you will go and buy these cars from the dealers. Not the dealers, excuse me. From the manufacturers sometimes and the dealers. Say, a Volkswagen Golf. Then you'll rent them out, and the car has to come back to you at some point.
What do you do if this product is getting more popular? You recycle these used cars. You can either sell them into the market, or you can start a used car lease. Because all the other leases are new. So I was talking about this, actually, with my wife. And she said, why isn't this product? I started to look into it.
There really isn't one so far. So I called the leasing companies, two of the biggest, Arval and Lease Plan, two of the biggest in Europe at least. And they said, oh, well, it's interesting you say that. We are about to launch a used car lease.
So to be clear, this is a long-term rental. So they'll only be about two or three years old. They'll be cheaper. At least, I would guess, at least 20% if not 30% cheaper because it's a used car. But they'll be in good shape because they are premium cars anyway. So they've figured out a way to price the maintenance going forward.
So returning to the original thesis where you said cheaper to rent rather than buy a car, particularly seeing as with these PCP deals, where you never actually own the car anyway, this third way of doing it presumably will make leasing a car rather than owning one even cheaper.
I think it will be. Yeah. And they'll be in decent shape. And I know that in the United States, there's a new launch of a thing called fair.com, where some auto finance guys have got together. They have a lot of experience in auto appliance. They've started what's called a thintech idea, this fair.com.
And they're very flexible on leasing, but it's all used cars, so it's a bit cheaper. They understand that particularly millennials have less money upfront to put for a deposit on any car. This offers a cheaper, viable way of doing it. It's something to watch for over the coming year. And Arval, one of the big leasers here, said they're targeting 5% of their entire lease business by the end of next year, so it will become a faster growing part of the market.
Well, thanks very much for driving up on our parking lot and giving us your views. That was Alan Livsey, the FT Lex writer. You can read his column on this subject in the FT Money Section on Saturday, or online now at FT.com/money, where you can comment and leave your views on what you think would be the better option.
I'm afraid that this is the last FT Money show of the year. We will be back on Thursday the 4th of January, 2018. And don't forget print readers over Christmas and New Year. The FT Money section will be within the Life and Arts pages of the weekend newspaper.
If you'd like to get in touch with our team of financial experts before then, our email address is email@example.com. You can tweet us @ftmoney or comment on articles schools online at ft.com/money. We wish all of our readers and listeners a Merry Christmas and hope you have a profitable new year. Goodbye.