I have always wondered whether it’s prudent to invest in digital currency such as bitcoin. This is because of the divided and equally convincing opinions by both proponents and opponents. To some, bitcoin is a market-disrupting liberation, but to others, a volatile creation. Corona pandemic, experts say, has spurred the recent increase in price with money coming from both private and institutional investors. Still, mystery encompasses this cryptocurrency.
Trading in digital money like bitcoin is not as complex as people make it to sound. It’s just the same way I can transfer money from my bank account to another. Bitcoin uses blockchain technology which sends data in cyberspace, only that it’s decentralized thus shelving them regulation by financial authorities. Lack of regulation gives cryptocurrencies the same value anywhere in the world thus making it easier to transfer from one individual to another without the rigmarole of exchange rates.
However, lack of regulation also comes with some disadvantages. Cryptocurrencies are very volatile causing delays in the time people take to get their money due to technical hitches.
From September 2020, the bitcoin price has steadily increased due to massive demand from investors as well as the revelation by PayPal that clients in the US will start buying and selling this digital money from using their app starting next year. As of January, one bitcoin was equivalent to $31,685. However, I won’t rush into investing in it considering that the currency made considerable gains towards the end of 2017, before plummeting in 2018.
The key trend that defines cryptocurrency is extreme volatility. For instance, to analyze the profit and loss of bitcoin prices, if I had invested at the beginning of 2020, I would have generated a 300% profit towards the end. However, if I had traded in January 2018 and sold in January 2019, then I would have lost 73% of my money because bitcoin prices fell.
One thing I have always wondered is how these prices move up and down so rapidly. Gladly, from my discussion with a few people here and there, I’m not alone. Although I can quickly argue that it’s just like market forces of demand and supply and the prevailing competition, I have not identified the exact factors that drive this trend. This, therefore, poses the risk of investing in digital currency.
There are new cryptocurrencies in the market that I need to keep an eye on. They include bitcoin cash, EOS, and litecoin. In as much as it’s tempting to trade in these new digital monies, I will exercise caution should I decide to invest in them. There are other types of digital currencies such as altcoins which are not smaller but also more volatile than bitcoin. This is because their investment remains speculative. Based on the expert advice, I cannot invest more than 5% of my money.
The unpredictable weather change in Rapid City, South Dakota, is the perfect metaphor for investing in cryptocurrency. With just over 75,000 inhabitants, the weather there is the most unpredictable on the planet earth. Summery thunderstorms and snow blizzards occur anytime, the condition calms down with a rapid increase in temperature. This is the perfect description of digital currency behavior. I have to invest; I’ll do knowing too well that I can lose some or all of my money.
Investing in cryptocurrency is a very high-risk type of investment. Due to their volatile prices, they can either bust, turn out to be scams or gain value. I thus cannot tell if they will remain a niche, be adopted in the mainstream financial markets, or vanish into thin air. Based on reviews from multiple sources, I will trade with due caution without putting all my eggs into one basket. I will spread the risk by investing in numerous cryptocurrencies.
Stablecoins pose fewer risks while investing in digital currency. This is because the more they develop, the more they become potential solutions to credibility and volatility that surround crypto-assets. DAI and TUSD are other digital currencies that I can choose to invest in as they are hosted on a safer platform and are backed by the US dollar.