In less than a decade, bitcoin has become a household name, yet only a tiny minority of people regularly use the alternative currency as a method of transacting.

Fewer still are those who understand the technology behind the phenomenon, commonly known as blockchain.

Those who have experience with bitcoin are more likely to be people who've bought it or traded it, in the hope of making their fortune and one day selling it for substantial profit.

However, in late 2017, when everyone from a humble Dutch family who sold all their possessions to "bet" on bitcoin, to Goldman Sachs traders who wanted to trade it, I wrote to my investors and said this frenzy reminded me of the bubble of 99/00.


In November 2017 I said: "blockchain is a useful technology. Ultimately, some of the currencies will survive and be in widespread use in 10 years.

"However, they need to go through their Armageddon moment first. There is so much out-and-out fraud occurring presently, it's going to come crashing down one day. I'd say most likely regulation will be the catalyst".

Two months later, bitcoin's price peaked at around US$20,000.

Already I've heard a few horror stories of people buying bitcoin near the top and others who have been unable to sell their bitcoin.

But worse still are those investors caught up in fraudulent ICOs (Initial Coin Offerings).

If you google ICO fraud you will find dozens of articles with scammers cashing in on individual's greed and the investment mania.

Cryptocurrencies are a hot-bed for criminal activity so it's no surprise that the innocent make easy prey.

Fortunately, regulators such as the US Securities and Exchange Commission (SEC) are starting to crack down, and this goes a long way to explain the collapse in value of cryptocurrencies such as bitcoin, which is now down by more than 65 per cent from its December 2017 peak.

Other cryptocurrencies have also suffered some major hacks in recent months, with millions of dollars' worth of crypto being stolen.

Bitcoin's early popularity has more to do with the significant media coverage that early bitcoin "investors" received, and the stories of how millions of dollars (note, "real money") was made.

This led to what many would call an investment bubble.

Speculation, hype and mania led bitcoin to become arguably one of the largest investment bubbles in history.

The fact that many of the investment rationales for bitcoin's success were lies was missed initially.

Scarcity was one of the many factors peddled, yet today Wikipedia estimates there are more than 1800 cryptocurrencies in existence (as at the end of May 2018), with new versions being created daily.

It's hard to know how accurate that figure is, because the data from April put the number at more than 1500.

Either way, it's safe to say that there are a lot of them, which unfortunately for holders, makes it less likely they will succeed.

In March 2018, Forbes magazine described bitcoin as the rock and roll of the millennials.

Google search trends show a strong correlation with the price of bitcoin and search interest — both peaked in December 2017.

Personally, I have a barometer that I use for testing whether a market or a stock is too hot.

If it's being discussed at the barbecue, or people who don't really know me (like an Uber driver), start asking me questions once they find out what I do — then I know it's time to get out.

This happened with bitcoin near the end of last year. Now, nobody asks me about bitcoin.

Some of the smartest financial minds in the world such as Warren Buffett and Nobel Laureate Nouriel Roubini have described bitcoin as a complete fraud, and the biggest bubble in history.

I agree and believe that like all bubbles, ultimately it must fall 90 per cent or more from its peak to fully deflate.

- Mike Taylor is the chief executive of PIE Funds.