As an investor, my strategy is to analyse key financial information within a company as well as determine whether the stock is undervalued or if any PSE’s will allow for a nice entry price. So it’s fair to say writing on a Cryptocurrency such as Bitcoin would not be my area of expertise, however I will try my best to break down how they operate and whether it is too risky to enter. In my opinion, it is a shame that such an exciting development like Blockchain has such a poor reputation due to a lack of regulation and scammers. If there is one thing I want to come out from this article, it would be to educate the population of how Cryptocurrency operates and how the lack of regulation means you cannot ensure that your money will be safe. However, I will add to that later when we break down the risk.
Crashcourse on Cryptocurrency
- It is a virtual currency that you can use to purchase G&S
- The fundamental technology behind it is called Blockchain
- Blockchain allows for information to be distributed but not copied
- This keeps a ledger (record) of the transaction of Bitcoin between people
- Bitcoin mining is simply computers solving complex math equations that verify transactions called “blocks”.
- For example, if you set up a computer to solve these equations you would be rewarded with a set amount of Bitcoin for “blocks” of verified transactions you have solved.
- The last Bitcoin is estimated to be mined in 2140
- As a currency such as Bitcoin grows, the equations become more complex and the reward per “block” of transactions decreases. This diminishes supply and the value of Bitcoin is built in a way to increase
- 1800 Bitcoin is mined per day across the globe and the biggest facility in the USA mines up to 7 a day.
What are the risks?
With Cryptocurrency, many people believe that it is safer than trading stocks or other commodities due to it’s sophisticated encryption. However, Cryptocurrency still holds significant risk due to high volatility, theft and transaction errors. The main area of risk is the lack of Government regulation resulting in many criminals using Bitcoin to make transactions on the Blackmarket. The lack of regulation also means that if someone does hack your account, you would not be able to report this to ASIC for example. There are obvious ways around this to minimise risk such as ; protecting your information and using a trustworthy trading platform.
Making calculated decisions
In my opinion, I would never invest in Bitcoin as I am no expert in the field of cryptocurrency or even blockchain. When making calculated investment decisions, you must first understand how the derivative/currency fluctuates and analyse the right time to enter and exit. If you do not understand how it works, why would you invest? However, many people have made nice returns off cryptocurrency with their own knowledge of good pricing. But as I see it ,there is no real good way to predict how Bitcoin is going to perform in the next 10 years as we do not even have 10 years of Bitcoin history to look at.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.