The Risk and Volatility of Bitcoin
Bitcoin is a financial tool that carries risks just like any other payment method or currency does. However, with bitcoin, those risks are slightly different from traditional currencies and payments. Part of that comes in the form of a rather volatile price, but then again, any local currency fluctuates on a daily basis.
Bitcoin and the underlying blockchain technology reduce a lot of the risks presented by traditional payment methods. There are no chargebacks, fraud is tough due to transparency, and the transaction fees are very low compared to credit cards, wire transfers, or remittance services.
That’s not to say that there are no risks attached to bitcoin either though. It’s a new breed of technology which is part ideology and part payment method. The technology is still under development as we speak. We are still discovering potential use cases for blockchain technology. So if you’re planning to invest in bitcoin from a technological development point of view, there is always risk involved. Even the best solutions and implementations may not be viable in the end, if nobody adopts them.
But there is a flipside to that story as well. Blockchain technology development shows lots of room for growth and creates jobs in the long run. Every new technological discovery needs people who can implement and maintain this new advancement, and preferably in a user-friendly way.
From a technological standpoint, there is hardly any risk when investing in bitcoin itself. Investing in a company that is working on this new technology is a different matter altogether, but that principle is the same for any company you want to invest in. Bitcoin company investments are not inherently riskier than investing in any other startup company.
When it comes to speculating on the bitcoin price however, the story is a bit different. If you look at bitcoin from the perspective of an investment vehicle that will likely gain value, there are quite a few risks attached. Speculating on price volatility is never a good idea, and bitcoin is proving to be rather volatile on a daily basis.
Ever since its inception, economists and investors have been keeping a close eye on the bitcoin price. What started out as a worthless digital token quickly rose to something that actually held value, once the U.S. $1 mark was reached. And even though the price continued to rise and fall until its peak of over $1,100 in 2013, many people still viewed it as fake Internet money.
To this day, bitcoin is often referred to as just that: “fake internet money.” Meanwhile, bitcoin has been making waves in the financial world. Investors from all over have been buying up bitcoin, as they feel BTC is a safer method of storing and transferring value compared to precious metals or traditional payment methods.