YOUR MONEY-Are Bitcoin buyers enthusiasts or savvy speculators?

NEW YORK, June 26 Wed Jun 26, 2013 12:59pm BST

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NEW YORK, June 26 (Reuters) - Pat Chen made a Bitcoin the other day. But he didn't mine it the way you are supposed to by following a set of instructions using a specialized algorithm to create the digital currency, then waiting to snag one of the 21 million Bitcoins that will be generated by the year 2140.

Developed in 2008 by Satoshi Nakamoto, a pseudonym, each Bitcoin gets a serial number and ownership is transferred between online accounts called wallets. They can be traded via online markets and accepted for payment by merchants.

Instead, Chen ginned one up on his 3-D printer. It is a bright yellow, grooved disc with a raised B on one side.

"It's just a toy," he says, showing it off at the regular Thursday night Bitcoin Meetup in New York City.

Chen only owns one "real" Bitcoin, but he's interested in accepting the currency at his tech shop, xCubicle, on the Lower East Side of Manhattan, and in disruptive technologies in general. Chen once speculated in Iraqi currency because he thought it would go up in value as the country rebuilt, like the German currency after World War II. But that did not happen.

"Bitcoin is like the lottery. It's a gamble," Chen says.

What Bitcoin is intended to be, however, is a currency - a virtual currency that exists independently of any government.

Bitcoins are "mined" by software running a set of algorithms and their release is tightly controlled, mimicking a central banking system's control over the minting of money. There are just over 11 million Bitcoins in circulation now, currently worth an estimated $1.2 billion.

And while some people insist it's just a fad, Bitcoin enthusiasts say it is the future. But with extreme volatility in the price of Bitcoins since the start of 2013 - they went from $13 in January to a peak of $266 in April to around $100 today - the outlook is hazy, even as trading gets more popular.

Since the beginning of the year, Bitcoin wallet accounts have grown to over 300,000 from 50,000, according to blockchain.info, which collects Bitcoin data.

Security is an issue, though. Two high-profile thefts, from Bitcoin Savings and Trust and Instawallet, amounted to more than $10 million in estimated losses. And seizures of virtual currency accounts, plus the shutdown of some exchanges by U.S. authorities on money laundering allegations adds regulatory uncertainty to the mix.

JUST GETTING STARTED

At the Meetup, Chen is joined by about 40 others in his demographic - mostly male, tech-savvy, under 40 - looking to build the kind of ancillary businesses that will serve the Bitcoin market. Some are building trading websites, others are working on information sites and some are working on charity initiatives.

Pierre Roshard, 23, just graduated from the University of Texas at Austin and is on his way to a job at Deloitte & Touche LLP in the fall. He has no 401(k), no Roth, no other investments, but he has some Bitcoins. He's building a website, bitcoinadvisory.com, full of information on topics such as tax implications and custody issues for financial professionals handling Bitcoins.

"I would hesitate to even use the word investment," Roshard says. "It's how I motivate myself. It's like having stock options in the company that you work for."

DANGERS OF THE BANDWAGON

New York City-based investment advisor Josh Brown, who is known on the Web as The Reformed Broker, keeps an annual list of the top investing fads and themes that have petered out. The list for 2012 included homebuilding stocks and the market's obsession with Apple. Contenders for 2013 are country specific exchange-traded funds, especially Japan, and new dividend equity funds.

Bitcoin is unlikely to make his list because he does not think it even rates as a fad yet.

"It's too sophisticated for the masses," Brown says. "The thing that will strangle it is that every large tech company is working on currency to be used in its own eco-system."

For Bitcoin enthusiasts, it is more about being part of a movement and potentially having that get-rich-quick moment that will catapult them past entry-level jobs.

"It's like Columbus discovering the New World," says Philip Nemirovsky, who travels from Philadelphia to New York each week to meet with others interested in Bitcoin. "It's a paradigm shift, like Napster."

When it is pointed out that Napster did not have a long, successful history, Nemirovsky shoots back: "Napster might be dead, but Sean Parker is still rich."

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