Investing in Bitcoin — The Pros and The Cons
Hi Platinum Crypto Followers,
The world of crypto is in a consolidation phase after double-digit losses something bigger is going down in the crypto space. It’s also worth noting that Bitcoin appears to have lost its safe-haven sparkle and been mostly ignored during risk-off periods of late.
DIGITAL CURRENCY POPULARITY
Digital currency is no longer the taboo everyone thought it was. It is gaining popularity across the globe. Even better, the technology behind it, blockchain technology, is finding a way into other sectors other than just finance. In finance, cryptocurrencies are offering a means of investment in Bitcoin for traders and investors alike.
Although the different types of cryptocurrencies are increasing in the market with a wide variety to choose from, it is evident that many will only relate to the first and currently the main digital currency, Bitcoin. Bitcoin is the mother of all cryptocurrency. Other currencies have been designed to emulate Bitcoin, but it still stands out. As such, Bitcoin became a mode of investment for many, which are leading them to want to learn how to invest in Bitcoin.
Bitcoin was developed by a pseudonymous person known as Satoshi Nakamoto with a circulating number of 21 million limit.
Investing in Bitcoin is a volatile venture, but for many who understand the financial market and how to invest in Bitcoin, they are making an income. More importantly, it is best to understand the advantages and disadvantages that come with investment in Bitcoin.
In an era where millions are curious over whether they should join the market, a better highlight of what to expect will guide you through making the right choice when it comes to investing in Bitcoin.
ARE BIG INVESTMENT BANKS AND HEDGE FUNDS TRADING IN BITCOIN?
There is a rise in crypto hedge funds. This type of hedge fund offers a different way for an entity to invest in a larger group of underlying securities. This said, investment banks and hedge funds are trading Bitcoin in an attempt to expand on their financial portfolio.
The first cryptocurrency hedge fund manages portfolios containing exclusively cryptocurrency. The second has a mix of different assets with the inclusion of a cryptocurrency asset class. Considering that, Bitcoin is a popular and well-stabilized currency; several hedge funds are embracing bitcoin investment.
On the other hand, big investment banks are reluctant about investing in Bitcoin. The reluctance is due to the volatility of the currency. The argument is that investors may want to pull out at any time, and with the unpredictable financial movement, the chance of selling at a loss is relatively high.
The advantage that hedge funds will benefit from investing in Bitcoin is that the chances of payment fraud and identity theft are minimal if any. Also, the settlement process is fast and accurate while at the same time, allowing investors to access historically inaccessible markets. Keep in mind that Bitcoin is a peer to peer currency that is not governed by a specific national body, making it easier to cut across any state in the world.
While Bitcoin remains a small percentage of the hedge fund industry, it is evident that the market is embracing this ideology. With the era of millennials, cryptocurrency, and more specifically, Bitcoin is becoming a part of their business strategies.
RISKS AND VULNERABILITIES OF INVESTING IN BITCOIN
In modern society today, bitcoin is used as a method of payment. The virtual currency has gained popularity, and with its advantageous nature and capability, it can be bought and sold on the internet. Being an investor, you need to understand the different Bitcoin investment strategy(s) for you to learn how to buy Bitcoin. However, the virtual currency has certain demerits that can primarily affect those who invest in it.
Experimental phase risk
Bitcoin has an innovative concept that does not provide historical data and experience. Thus, an investor is not able to keep track of the digital asset; therefore, it is not trustworthy.
The fluctuations of bitcoin prices are unpredictable moreover in the short term, which is considered as a risk of this digital asset making it one of the cons of investing in Bitcoin. The best Bitcoin investment occurs when investors buy when prices are low and only sell them when they are high irrespective of time relevance.
When using the virtual currency, it does not provide consumer protection. Meaning an excellent transaction cannot be retrieved or undone. The reason being, it does not have an intermediary guarantor.
Loss and theft through negligence
Hackers can gain access to investor’s private secret key and steal all the content of the cryptocurrency wallet.
RISKS AND VULNERABILITIES OF VIRTUAL CURRENCY
Virtual currency comes with its perks and twerks. While the technology behind Bitcoin comes with the advantage of promoting anonymity and transparency, it also comes with its fair share of risks.
Financing of anti-social acts
Due to its anonymity, virtual currency has raised the concern that it may be financing illegal and immoral activities. Anti-social acts such as human and drug trafficking can be funded using cryptocurrency. How is this possible? Well, individuals love the fact that they cannot be traced with ease due to the anonymity that crowds virtual currency.
Excessive volatility/ market fluctuations
Just as with stock trading, investing in Bitcoin is volatile with the addition that even financial advisors cannot predict the trend. Keep in mind that digital currency is not precisely affected by economic factors such as politics or alteration of a country’s currency. The price of Bitcoin fluctuates making it a risk even for people who have traded in such markets before.
High chance of loss
Many are cautious about Bitcoin because the risk of loss is very high. This loss is due to a security barrier that arises from technical malfunctions such as glitches or fiduciary fraud. Also, many governments are terming the trade of virtual currency “money laundering scheme.” With Bitcoin’s limited scaling, the system limits the speed as well as the number of transactions to process. This concern is the reason banking institutions think that Bitcoin transactions and other cryptocurrencies cannot replace fast credit card transactions.
HOW WILL WALL STREET INFLUENCE CRYPTOCURRENCY?
Wall Street may provide both positive and negative effects on cryptocurrency. Wall Street can kill crypto through hypothecation. Hypothecation occurs when a firm that has equity shares in a particular company signs the shares away to a lender to act as collateral. If Bitcoin is re-hypothecated several times, the concern comes in when it comes to deciding who the actual owner of the Bitcoin is especially considering that multiple parties have its key.
The upside of Wall Street’s effect on cryptocurrency is its introduction of Bitcoin futures to its brokers and exchanges play a crucial role in reducing volatility. Futures allow individuals/traders to speculate a cryptocurrency’s downside and upside, making investing of Bitcoin more friendly. Also, it will be able to reduce instability due to the presence of high-frequency trading bots that ease concerns on how to buy Bitcoin.
The above pros and cons will also help to determine a bitcoin investment strategy for every investor. More people and entities are accepting Bitcoin as a mode of payment. The best bitcoin investment does not assure immediate returns. However, it monitors the markets so that investors can trade when the market is giving a bullish scenario. Investment in Bitcoin is facing challenges in the market, but it is proving to stand out as a legit cryptocurrency.
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Live from the Platinum Crypto Trading Floor.