We are living unique and transforming times and we wish big and quick profits, one of the most controversial new investment vehicles has been Bitcoins, the virtual currency. But not everyone agrees as a consequence of its volatility, partly through possible failures in transactions and due to their non-traceability meant they were a favored payment method for criminals.
Things are changing and after a particularly volatile spell in which one of the big exchange companies, MtGox, declared bankruptcy, the currency reached some maturity level permitting traders analyse how much risky that transaction is and whether to risk their money in a currency that technically doesn’t exist.
Volatility
The Bitcoin market is too small yet, so it’s important to understand that any news can have devastating effects on the price. And when analysing graphically, Bitcoin looks like to have a new chance to increase too much, and that’s why we have dozens of investors defending that coin and asking for legitimization. Most broker agents recommend that you consider Bitcoin a medium to long term investment because of its volatility. We can compare such investments with real estate. When purchasing houses and apartments, the long run can beat short run. The same can be said for Bitcoins. Whilst there is a significant daily trade in the currency, many Bitcoins are held as investments as analysts believe that it’s likely popularity increase of Bitcoin will help it to get better results in the long run.
Influencers
As with all financial instruments, prices are influenced by supply and demand. Bitcoins are no different but what has caused big fluctuations in price has been the unusual nature of the news that influenced the supply and demand:
• The bankruptcy of MtGox, one of the biggest Bitcoin exchanges
• The closing down of Silk Road which allegedly accepted Bitcoins for drug trading
• The disclosure by the US government that, despite the negative uses of Bitcoins, they believed that the currency had a future
• The media has also stirred up interest by reporting on milestones in the currency’s rise and fall, trumpeting the rise to over $1000 and its subsequent plummet on bad publicity.
Generally the advice on investing in Bitcoins is to sit and watch the market for a couple of weeks to get an idea of how the currency trades, its volatility and trends. Rumors can affect the value, and you should start investing a small amount and simply following for opportunities, a little similar with Forex transactions, you can do the same on Bitcoins; it’s just a bit longer process and a little less automated.
Just like with any investment, the value can fall, and events like the collapse of MtGox and the closing down of Silk Road, negatively affected Bitcoins; not just because demand was reduced but also because Bitcoins were falsely linked with the companies by urban myth. The market seems to be becoming more regular, but not necessarily regulated, as more exchanges come online. Some of the exchanges will go the same way as MtGox but others will consolidate and become stronger and more reliable. No doubt official regulation will be applied to Bitcoins in due course at which time the volatility is likely to reduce.
Bitcoins can be an exciting and potentially lucrative medium to long term investment vehicle. Exciting because it hasn’t yet been accepted into the mainstream of currencies or investment vehicles. One thing investors like about Bitcoins is their conviction to prospects as was in gold.