If you kept hold of your investment and were wise or lucky enough to sell at the very top of the market in November last year, that single dollar stake was worth an incredible $67,566 (almost £57,000).

Wow! To paraphrase the old Dire Straits hit: “Money for nothing and your clicks for free.”

You would have to be a saint not to be tempted by the opportunity to make such riches with the only effort being a click of your mouse.

The value of Bitcoin has fluctuated over the years.

And I admit I was tempted – largely by an old college friend who made so much money in his career that he retired in luxury before he was 40.

He urged me to jump on the bandwagon and buy as many Bitcoins as I could. This was at the beginning of 2017 when they were then trading at about $1,000 each.

There were two problems. Firstly, I didn’t have the foggiest idea what Bitcoin, a type of “cryptocurrency”, was.

Secondly, I didn’t have much in savings and had promised the family a summer holiday.

So, I turned the opportunity down, only to see the value of Bitcoin absolutely rocket. Ho hum, I have always been terrible with money. With a bit of hard graft, I can earn it, and I certainly enjoy spending it. But the bit in the middle, investing for a solid return, is a skill I have never mastered. But I have no regrets. A family holiday with the children is worth more to me than a few quid.

Investing in cryptocurrency is certainly not for the fainthearted. The price is very volatile and goes up and down like a roller coaster.

Bitcoin, for example, has lost much of its value since that November 2021 high. When I looked earlier this week it was trading at $16,687. So, if you were unlucky enough to buy at the top of the market you are looking at a catastrophic loss.

But my objections were more fundamental. What exactly is cryptocurrency? Well, the best definition I have found is that it is a type of digital currency that investors can buy and sell, and which is kept in a sort of virtual wallet.

The supply of the “coins” is limited, so that if demand goes up, so does the price. Conversely, if everyone starts selling, which has happened recently, the price plummets. If you forget the passwords to your virtual wallet, you lose all your money.

One reason they proved so popular, apart from the rocketing price, is that unlike traditional “fiat” currencies controlled by national governments, cryptocurrencies can circulate using decentralised exchanges, beyond the authority of the central banks, such as the Bank of England and the Federal Reserve in the USA.

But this definition only takes us so far. Other than investor sentiment and the vagaries of supply and demand, what is the value of a unit of cryptocurrency based on? Not a lot as far as I can tell.

In contrast £10 note carries the signature of the Chief Cashier of the Bank of England and the words: “I promise to pay the bearer on demand the sum of ten pounds.”

In the past this promise was backed by gold, and you couldexchange your Bank of England notes for actual gold. But in 1931 the link with gold was broken and now we rely on the solidity of a government-backed central bank to give us confidence in the value of our banknotes.

There is nothing similar with cryptocurrencies. When they fall there is no bottom.

This was illustrated perfectly a week ago with the spectacular collapse of one of the world’s biggest cryptocurrency exchanges, FTX. FTX was founded by Sam Bankman-Fried, 30, a tech entrepreneur straight out of central casting, complete with tatty T-shirt and shorts. He played computer games during meetings with big investors and slept on a giant beanbag next to his desk.

He was hailed as the king ofcrypto and high value investors showered him with money. But earlier this month, after doubts were raised about the financial structure of his empire, the whole thing fell apart.

The speed of the collapse was astonishing. Bankman-Fried’s personal wealth went from $16.2bn to $3 overnight and investors look likely to lose billions.

The moral of the story is, like with any form of gambling, don’t bet more than you can afford to lose. And if anything looks too good to be true, then it probably is.

FTX: What is cryptocurrency and where did Sam Bankman-Fried’s FTX go wrong? - Bill Carmichael