Is it safe to buy Bitcoin and how can I trade the currency to my advantage?
I have some petty cash to spare and I am intrigued by the whole concept of Bitcoin currency. I did some research on it and found that it is the best performing currency for the past few years. It seems like the value of the currency is still on the rise.
Hi, one has to differentiate between cryptocurrencies such as bitcoin and the technology behind it ie Blockchain technology. Blockchain technology is arguably very innovative and offers elegant solutions to a number of problems such as transactions, supply chain, information management etc. Firms such as IBM are now offering solutions to clients using Blockchain technology and large banks are adopting it for their transactions.
Cryptocurrenceis themseleves are a bit more unclear and I would argue, are in their infancy. Bitcoin is just one cryptocurrency and there are over a 1000 other cryptocurrencies and many more are being offered every day.
Bitcoin has had a incredible run over the large few years and stories abound about how much money you would have made had you bought it a few years ago. What those stories don’t touch on is the gut wrenching drops the currency has had between then and now- it was almost 90% down a few years ago. So, if you do plan on buying bitcoins remember that for a variety of fundamental reasons and especially because of the price volatility it is speculative with a very high volatility and there is a chance that you could loose a large percentage of what you put in.
There is nothing safe about Bitcoin and it is very volatile, many days moving up or down double digits. In the past few days it has gone from over $11k down to around $9k Thursday, or an -18% loss since Wednesday (11/29/17) morning. Today, Friday midday, it is back to $10.5k, or a 16%+ gain from Wednesday.
It is not a true currency yet as governments decline to accept for debt settlement or tax payments. That is one of the biggest uses percentagewise for money/currency is payments to governments. So until it gets broader acceptance, I would consider it an asset not a currency. Compare that to gold which is accepted & traded in every country in the world. Not saying you can't make money with Bitcoin or I am against it, just that you need to be going in with your eyes open and realize it is very volatile and it is speculative currently. And one of the worst ways to invest it to performance chase & look up what went up big the last couple of years, extrapolate, and assume that will continue.
The exchanges you must currently trade on have some "issues" and just the past few days two big ones - Gemini & Coinbase - had "technical difficulties" while Bitcoin was declining so you couldn't sell. Now the good news is that bitFlyer, a Japanese based exchange, is getting registered to do business in 40 states in the U.S. and they do approx 45% of Bitcoin volume. So it would give a U.S. investor the most liquid & regulated platform. Even better, the CME & CBOE have announced plans for a Bitcoin futures contract, which means it will be fairly liquid and professionals will use. And ETFs are also on the way so it is gaining popularity.
If you are going to "trade," you need to understand technical indicators to know when to get you in and out of a trade. The problem with Bitcoin is that it is so volatile, technical indicators most times aren't of value. You blow right past, or "gap down," below your stop or technical levels. So currently the way I might invest is to participate in companies that accept Bitcoin and buy very small positions of 5 to 6 for diversity. And your total portfolio allocated to cryptocurrencies shouldn't be more than 8%, otherwise you could get a double digit hit on the entire portfolio which is hard to recover from. If you invest 30%+ of your portfolio, you could simply blow it up. Otherwise, but a small, 8% max, position in Bitcoin itself, and hold on for the ride because we just don't know yet which one will will: whether it's Betamax or VHS.
If you are interested, our weekend podcast is actually going to discuss the pros & cons of Bitcoin including some of the comments I have made above toward the end of the first segment. You can simply go to www.RevereAsset.com & sign up for our Daily Market Video Newsletter and/or Weekend Podcast. I promise we will not spam or solicit you in any way as it is always up to the individual to reach out to us for help. But both the podcast and the short, daily market video are a great learning tool, especially if you want to learn about markets & trading/investing.
Hope this helps and best of luck, Dan Stewart CFA®
You are asking a great question and one which the whole world seems to be fascinated with. As far as safety, Bitcoin is maybe the complete opposite of satety, which means it is totally a speculative investment. A currency is a medium of exchange, and in this case it is a digital currency, which has no government backing. Assets like stocks and bonds can be valued because they have underlying cash flows where as a currency does not. Many are valuing bitcoin based on usage, and the fact there is a limited supply. It is a trading and speculative asset and should be treated as such. In terms of trading it to your advantage, I would pick a price point you are comfortable with, and also do not trade it on margin, and only invest as much as you are willing to lose because it can very well happen. You might wait until there is a nice drop and target a price gain in the event things work out so you have a strategy. I hope this helps answer your question.
Yale Bock, CFA
Y H & C Investments
Don't call this a currency. It is not legal tender anywhere in the world. It is only worth something as long as some other fool wants to invest in it. As an investment, it has been extremely volatile. I would suggest your odds are better going to your local casino and putting everything on red. I may be wrong, but it is my opinion.