Investors are asking if they should buy bitcoin or invest portions of their retirement funds in the cyber-currency. The air is filled with hype: bitcoin is “unstoppable,” it is “the answer,” it is “the future.” But it may also be heading for a crash.
Here are a few tips before investing in bitcoin:
Bitcoin is highly volatile and has crashed before.
On Thanksgiving 2013, a single bitcoin was worth $979; by April 2014, it was worth $422. In late August 2017, it settled at $4,673; by Mid-September, it was at $3,783 immediately before its outstanding fourth-quarter climb.
The free market determines the value of bitcoin.
Because of this, it can suffer sudden, dramatic devaluations due to the day’s headlines. When China ordered bitcoin exchanges to shutter, the price of bitcoin slid. When JPMorgan Chase CEO Jamie Dimon called bitcoin “a fraud” in September 2017, the price quickly dropped by 10%.
Bitcoin has long been linked to the “dark web.”
Even its origins are mysterious: the digital currency was created by someone named “Satoshi Nakamoto,” whose identity is still a question mark. Bitcoins are also made in cyberspace by computers, beyond the control of any government.
If bitcoin is the “new gold,” gold also has intrinsic value.
Governments, banks and institutional investors share a foundational belief that gold is a valuable commodity. Does bitcoin have such a foundational belief in it? If speculators stopped believing bitcoin was valuable, then how valuable would it be?
In the financial markets, higher prices are not always succeeded by higher prices.
This is essentially the belief holding up bitcoin. Its biggest fans believe its direction will only be heading up for years to come, a term known as irrational exuberance, which has harmed many investors throughout the years.
Whether you think bitcoin is the “new gold” or is simply a bubble ready to burst, its extreme, dangerous volatility means on thing: if you do choose to invest, you would be wise to only invest money that you can afford to lose.
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