Understanding Bitcoin and Financial Risk

by Andrew McGuinness     Sep 17, 2018

Bitcoin is one of the highest risk, highest rewards types of investment. Of course, we learn early on in Trading 101 that great rewards only come with great risk, and this seems doubly true for cryptocurrencies. Like any other type of market, bitcoin fluctuates up and down, green and red – instead it appears magnified by a large factor.

In regular stock markets, fluctuations of a few points are enough to shift the balance of a commodity – often in the form of a few dollars of real value per share. In bitcoin the same thing happens, but in the form of thousands of dollars of value instead.

Bitcoin Fluctuations

Bitcoin has very large fluctuations in value, making it an interesting investment – which can be a problem or an opportunity as you learned in your Trading 101. It is definitely advisable to go into bitcoin with a cautious mindset and the absolute understanding that you’re likely to lose all your money invested, hence it is recommended to only go into bitcoin with money you can afford losing.

If you’re looking to use some disposable income to put into an investment you don’t have too much emotional attachment to, Bitcoin is ideal. You can invest in Bitcoin long and short. If you’re willing to take a short approach, you’ll be pleased to hear that bitcoin hasn’t dropped below $7000 since January. In fact, between February (its lowest point since December) and March, the value of bitcoin shot up from $7000 to $11500. If you take the long approach, you can check in on your bitcoin investment monthly to see if it’s worth selling – if not, wait another month and see then. If you compare price of bitcoin at the beginning of a month compared to the end of a month, it’s almost always a profit to sell at the end of that 30-day period.

Building Wealth with Bitcoin

If you’re looking to safely build your wealth, whether for retirement or other purposes, Bitcoin is something you should invest only moderately in. Understanding risk against stability is crucial to be a good investor. And taking that understanding means to know that Bitcoin is, in the context of financial stability, a good additional investment but not a priority as it’s never a sure thing. Your financial stability should not depend on a highly volatile asset. It should be more of a luxury rather than a need.

Bitcoin is different than many other investments – you’re not investing in a tangible asset. For instance, bitcoin does not provide dividends or other payouts. Bitcoin goes up and down in value and has no guaranteed profit in both the short and long run, but its value can scale drastically to augment your income by being a profitable asset to sell off once it reaches a certain level of value.

It’s About Your Goals

Investing in bitcoin should fall in line with your investment goals – are you trying to build long-lasting wealth? Are you trying to establish a quarterly income to augment your regular income? Or perhaps are you investing for short term profit? All these questions are related to financial stability and their answers will determine whether investing in bitcoin is a good idea for you.

Never forget that investments should be done with an end-goal in mind, and that goes for bitcoin too. There might be safer investments in the cryptocurrency sphere to research – there are plenty of other altcoins that are less volatile compared to bitcoin, such as Ethereum, Dash and Ripple, which might align with your financial stability and investing goals better than bitcoin itself.

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