First let’s ask ourselves the question what is investment risk? Investment risk is basically the way we asses a certain investment with regards to the probability of losing that investment or a big chunk of that investment. The more risky the investment the more likely it is to lose that investment. On the flip side of a risky investment is a substantial reward and this is the reason one takes risk in the first place. Generally investors want to reduce risk as much as possible within their investments but still keep the substantial reward so it is a fine balance. Now we have a relative understanding of what risk is, this leads us to our next for questions.
Is Bitcoin risky?
Bitcoin and risk go hand in hand. There are many reasons for this, let’s break some down.
Bitcoin is risky because of its price volatility. This means that investors around the world are buying and selling bitcoin 24 hours a day 7 days a week at all kinds of ever changing volumes depending on all sorts of reasons like news, rumours, announcement of technology or software updates, sell offs, large orders etc.
Bitcoin is risky because of its uncertain future. Bitcoins uncertain future and pure infancy makes for a high risk investment considering it does not have a large market share in its given market which was stated in the white paper is electronic cash or a peer to peer financial marketplace.
Bitcoin is risky because of the negative mainstream media it receives. This is a touchy subject to some and a subject that is cast in a shadow of doubt and uncertainty. Some say the mainstream media purposely portray Bitcoin to be evil, risky or illegal etc, because the people who own the mainstream media have their eggs in a different basket. They are invested in traditional financial and banking systems and solutions. On the other hand it may just focus on some of the bad sides of the story for ratings.
Bitcoin is risky because it is quite technical and hard to understand. The average Joe can’t create a digital wallet and go sign up to an exchange to deposit FIAT and buy some Bitcoin then transfer that Bitcoin to his wallet. Mistakes can be made within these steps and large amounts of money can and have been lost. This increases one’s risk.
Bitcoin is risky because someone will always try to hack it. Hacking the blockchain itself is near impossible with today’s computing power but hackers always try to find your personal and private keys to your digital wallets or other scammy traditional persuasive ways of getting your juicy Bitcoin.
Is the reward worth the risk?
Managing risk to reward of your investments is an absolute basic integral part of investing. Investing in Bitcoin is potentially worth the risk if you have studied the underlying technology and you are somewhat of a forward thinker. The potential if it succeeds can outweigh the risk in a lot of people opinions; however, that is for you to decide.
Some reasons for taking the risk would be the fact that encryption is becoming better understood and Bitcoin is based on encryption.
Bitcoin’s underlying technology which is Blockchain technology is absolutely a game changer and will definitely disrupt industries worldwide. It has a massive future ahead.
Bitcoin is also now a worldwide well known brand (even if it isn’t a Brand in the technical sense). Everyone nowadays has heard of Bitcoin even if they don’t quite understand it.
Bitcoin is potentially undervalued if we take into consideration the possibilities, numbers and figures intertwined within it. For example if you look at the total market capitalization of the world’s currency then ask yourself if Bitcoin can take just a small fraction of this what the price would be? Could it be undervalued due to the vast amount of fake news (from established financial services) bringing down its price and trying to destroy it for selfish purposes? It is undervalued due to it’s vast world currency implications should it succeed? Is it undervalued if one looks at the total amount of Bitcoin that have been lost for good? Is it undervalued if one looks at the total amount of Bitcoins that will be produced which makes the limited supply produce scarcity and creates high demand which in turn produces high prices? Is it undervalued as it is the first truly decentralized currency? It’s borderless and trustless. It makes no distinction of background, race, upbringing, political belief or geographical location. It transacts in minutes at low cost. The list of possible rewards to the risk continue to mount up and require serious consideration. Always remember though, that you should never invest what you are not prepared to lose!
How can one reduce their risk but still invest in Bitcoin?
Reducing risk is an absolutely fundamental component of investing. Investing in Bitcoin is no different. Let’s take a look at some ways we can reduce our risk when investing in Bitcoin but not let that risk scare us from investing at all.
Study this guide and make sure you have a well thought out and trusted Bitcoin wallet to begin with. Follow the instructions carefully and read every prompt to make sure you are well aware of what is required security wise to keep full and complete control of that wallet and its private keys. Keeping your private keys and digital wallet safe and secure is a MUST to reducing risk while investing in Bitcoin.
Use a reputable Bitcoin Exchange. Search google and ask in forums or ask friends and family which Bitcoin Exchange they currently use. Everyone will recommend one and they may differ so make sure you reduce risk by studying the good and the bad to remove yourself from traps and pitfalls. The fastest and easiest exchange in New Zealand and Australia that we recommend is easycrypto.com.au (Australia) or easycrypto.co.nz (New Zealand). These exchanges are fully Australian / New Zealand owned and comply with all AML (Anti Money Laundering) and CTF (Counter Terrorism Financing) rules and regulations laid out by their respective governing bodies.
Reduce your risk by getting familiar with the price and study the volume so that one can get used to the charts and the ebbs and flows of the market including price variation and what is considered a good time to buy.
Another term you may hear bandied about is dollar cost averaging. Buy Bitcoin periodically and not all at once so you can take advantage of dips and corrections in the market. This will reduce your entry level cost which reduces risk.
Study Bitcoin and really wrap your head around it so that you are able to stay focused and determined through the rough patches that inevitably occur in this fledgling market. Know that on average Bitcoin has gone up hundreds of percent year on year with the exception of a few.