Two sides of the (Bit)coin when it comes to investing

Two sides of the (Bit)coin when it comes to investing

The crypto industry in general is a volatile one. This is especially evident in the case of Bitcoin. The price of the currency has increased by more than 600% this year alone. It recently set a record high of over $7,600 before stabilizing at around $7,000. Stabilizing might be a bit of a loose term with regard to Bitcoin due to the market’s unpredictability.

Because of this, when you buy Bitcoin is extremely important. In addition to its highs, it has experienced some lows. An example is when it dropped by 20% at the beginning of this year. Double-digit drops in fiat currency would result in panic, but Bitcoin seems to be in league of its own as it still appears to be a lucrative investment.

In 2008, during the global financial crisis, stocks plummeted by 40%. The repercussions of this period can still be seen and felt today. People who had invested their savings were left devastated, and not as financially stable as they would have thought going into their golden years. Experts have said that this was a once-in-a-century event. For Bitcoin, drastic drops seem to be common occurrences.

CME, the world’s largest exchange, recently unveiled its plan to launch a Bitcoin futures contract by the end of this year. This would make investing easier, and would be a great start to integrating the currency into the mainstream population.

However, the support of such an established company does nothing to negate the fact that Bitcoin has an erratic trading trend. Also, CME puts limits on price changes, and Bitcoin’s price is everchanging. This could result in a cease of trade situation for the currency, which is not the greatest confidence booster.

Because of this volatility, investors may also be required to provide even more collateral to cover any possible losses. This could negatively affect the rate of public adoption even more. Also, if Bitcoin does drastically decrease in value, investors would be heavily out of pocket, until it picks up again.

All of these factors have resulted in Bitcoin detractors sharing their opinion on the subject. Peter Dixon, chief UK economist at German bank Commerzbank, has stated that everybody in the market thinks this is an “accident waiting to happen”.

Because it’s so erratic, it’s hard to judge the success of this new era of Bitcoin investing. Enthusiasts might be correct in stating that it is the currency, and investment asset, of the future. Investors however should not be blinded by its 600% growth. What goes up must always certainly come down.