Considerations When Investing in Bitcoin

Investing in Bitcoin has become all the rage in recent days.  It could be described as a bubble on top of volatility on top of a steady increase.  Keep in mind that Bitcoin can be used as a payment system and the volatility is only important if you hold bitcoins.  The price does not matter if the Bitcoins are converted immediately after transactions.  If you do want to invest here are a few considerations:

-New investors have entered the market pushing and many people have taken notice.

-Investment by Chinese savers looking for store of value has increased.

-US Congressional hearings went well and pointed out the innovation potential of Bitcoin.

-Many who previously panned Bitcoin are starting to realize it is an underlying protocol and services can be built on top of it.

-Only a tiny percentage of potential users are using Bitcoin now.  Gains can be large and dramatic.

There are many people who never heard about Bitcoin before are inquiring about investing.  Discussion boards are full of discussions about a “new paradigm” and some are advising people to take out loans to buy more now before it goes up even further.  More cautious advice is to invest a small amount so a huge gain would be great but a small loss won’t matter much.  Some claim that the bubble was the jump to $900 and when it went back to $500 it was over and the rest is just a normal increase..

Before investing a significant amount you should consider a few more things:

-Each time the market has increased like this before it corrected violently downward.  However, it has always come back up and exceeded previous highs in a relatively short amount of time.

-Bitcoin is still in its experimental stages and the software is still in “beta.” (version still starts with a “0”).

Professional investors are involved who have worked on Wall Street.  Max Keiser, a big Bitcoin proponent and investor, worked on Wall Street for years and has a patent involving virtual currency exchanges.  They know what they are doing when it comes to investing.

-Depth in these markets is small.  This means a small number of investors with large holdings can sway the market.  Large changes in the price can occur in minutes any time of the night or day.  There is mostly no regulation to prevent market manipulation.

-Bitcoin is currently limited to about 7 transactions per second.  Visa/MasterCard can handle thousands of transactions per second.

-While the number of merchants is increasing, it is still very small.  BitPay has 12,000 merchants but it is difficult to find more than a few hundred that sell products and the selection is often thin.  China has only a handful of merchants who accept Bitcoin.  BitPay Directory | CoinMap.org | BitcoinFood.com

Profits and losses can be swift in this market.  Be careful!

 

 

 

 

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