Is Bitcoin too much of an investment risk?

More than three years ago, we asked the simple question: is bitcoin investment worth the risk? Well, if we had actually bought a bitcoin at that point in time, we’d undoubtedly say that it was. At the end of the day on August 29, 2014 (when that article was posted), the price of a single bitcoin was $518.71. At the time of this writing, it’s right around $13,000 (which is actually down from around $19,000 toward the end of 2017) – though it’s moving constantly.

This shouldn’t mean that we all hop aboard and start investing in bitcoin. All it means is that if we had, we’d stand to profit significantly today. But investments often look this way with perfect hindsight, and it shouldn’t necessarily affect how we trade in the future. Nevertheless, with bitcoin having surged powerfully in 2017, here are a few notes on how to approach investment in 2018.

Exercise Caution

It’s easy to look at bitcoin right now as a lucrative asset, capable of massive gains. Actually, that is what it factually was in 2017, so it’s not just perception. But particularly for inexperienced investors, this is as much a red flag as an encouraging sign. The more important thing to recognize about bitcoin in 2017 is that it was incredibly volatile – more than capable of rising or falling over $1,000 in a span of just a few hours. The overall trend was still sharply upward for almost the entire year, but the volatility in most any other investing arena would spook a lot of investors. Bitcoin should be approached not as a free ticket to gains, but still as a risky and uncertain asset.

Learn The Business

Learning to understand bitcoin can be a long and confusing process for a lot of people. For long-term investment, however, it’s also vital to learn more about the business, so to speak, of holding bitcoin. Most importantly you need to gain a firm understanding of your wallet options. You have to bear several universal risks in mind when choosing a wallet, and learn the differences between software, hardware, and paper wallets. To put it simply, you’ll be tempted to go for an app or desktop option out of sheer convenience – however, if you plan on holding bitcoin for a long time, other options that aren’t connected to the internet might be more secure. This is just one example of something you’ll have to learn if you’re to become a serious cryptocurrency investor.

Keep An Eye On Regulation

People are still trying to figure out what factors drive the ebbs and flows of bitcoin’s price. The simple fact might be that investment itself drives investment right now; people are jumpy about such an exciting new asset, and many amateurs are buying in, meaning people are perhaps more liable to buy as it’s going up and sell when it shows the slightest hint of decline. If there’s one overarching thing that affects bitcoin, however, it’s government regulation in larger countries. Much of the 2017 surge, for example, was credited to the Far East easing off of bitcoin restrictions. Thus, as you study bitcoin and consider managing an investment, be sure to tap into any and all news about regulation.

Heed Predictions Carefully

As we turn the calendars over to 2018, we’re seeing a lot of bitcoin predictions. It’s only natural to approach a new year looking ahead to how an asset will perform, particularly after such a lucrative past year. Looking through some of these predictions, we found a simple but powerful line from Yahoo Finance (which projects bitcoin growth toward $20,000 or $25,000 by the middle of the year): “any predictions beyond that are pointless.” This is something not too many analysts seem to be willing to admit, but it’s important to keep in mind. Right now you can find all kinds of predictions, from a total crash to a boom toward $100,000 – and it’s important to take them with a grain of salt. There’s logic to all of them, but the truth is we’ve never had an asset like this and everyone is guessing to some degree. Yahoo Finance has a point.