With the 21st century demand for quick and big profits, one of the most controversial new investment vehicles has been Bitcoins, the virtual currency. It’s some way controverse as a consequence of its volatility, due to as a result of possible cyber security issues and partly because their non-traceability meant not only stores would have interest on Bitcoins, but also criminals intending to request money unauthorized payment.
Things are changing and after a particularly volatile spell in which one of the huge players of crypto transactions, MtGox, filed for bankruptcy, the currency seems to have settled into a more stable pattern enabling traders analyse how much risky that transaction is and whether to risk their money in a currency that technically doesn’t exist.
Volatility
Although Bitcoins are becoming increasingly popular, the market is still quite small, meaning that good and bad news can have a negative reflection about prices. The long term outlook for Bitcoins is potentially good, and that’s why we have dozens of investors defending that coin and asking for legitimization. Most stockbrokers advise that you consider Bitcoin a medium to long term investment because of its volatility. Think of it in terms of real estate. No one buys and sells houses many times a day and there can be significant drops in property prices but the long term trend for property prices is usually up. Same way for Bitcoins. Daily, it’s achievable a good volume of transactions for each individual, but many analysts consider possibility to get that’s possible popularity increase of Bitcoin will help it to get better results in the long run.
Influencers
As with all financial instruments, basic rules like supply and demand tools . and even if you consider Bitcoin has caused fluctuations, understand that ups and downs of the :
• 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, so many suggest investing a small amount and simply following for opportunities, a little like setting take profit levels with shares and Forex, 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 represent 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.