March 12, 2018Article

Risks vs Returns: Why Investing in Bitcoin is a Balancing Act

During the last 12 months, the price of Bitcoin increased from $1000 to almost $20,000. However, last month, the value of this leading cryptocurrency plunged below the $6,000 mark, a demonstration of its high volatility. The unpredictable nature of cryptocurrencies, coupled with their high volatility, has raised questions regarding whether or not they’re worth investing in.

"I strongly believe that investing in Bitcoin is still a wise choice," Alessandro Cadoni, co-founder of Friendz.io says. According to him, Bitcoin and the cryptomarket will remain solid for years to come. "If it is true that it isn’t a pioneering move anymore, I think that there is still potential in Bitcoin and a market which will remain a solid reality in the years to come," he adds.

Cadoni isn’t alone in thinking that investing in Bitcoin is worthwhile. Many other cryptocurrency players believe in the cryptocurrency market.

Mojtaba Asadian, founder and CEO of Darico AG, says, "Bitcoin has been called digital gold by some Generation X/Y millennials who are using it as a store of value. It's the most liquid cryptocurrency, thus it makes it a worthwhile investment amongst other crypto assets."


Rising tech interest

Despite the wild price swings that Bitcoin experienced last month, there’s a growing interest in cryptocurrency technologies. This is evidenced by the focus that governments, top financial and tech companies have expressed in the recent past. Russia and Venezuela have already communicated their intention to develop their own cryptocurrencies, while Facebook's founder, Mark Zuckerberg, said he wanted to study the technology underlying cryptocurrencies.

According to Marcus Vandea, CEO of Playfold, the reason why investing in Bitcoin now makes sense is the fact that the future growth of technology will pave the way for an increase in the value of cryptocurrencies.

He says, "You should invest in Bitcoin as the interest around the tech will only rise in the years to come and with it its valuation. But other coins will perform much better, and will be much more stable."


High resilience

The value of Bitcoin rose by more than 1000% between January and December 2017, a growth that hasn't been recorded in any other asset class. Though Bitcoin has gone through turbulent times this year when its value fell below the $6000 mark, it has started regaining value.

At the time of writing this article, it was trading at $11,206, and market players still anticipate further growth.

"Bitcoin has proven to be an excellent mid-to long term investment. It has outperformed commodities and other markets by a large percentage. Market analysts, including myself project further growth in Bitcoin value moving into 2019, so it would be very smart to buy on dips and project your profit targets using yearly historical growth rates," notes Roman Guelfi-Gibbs, CEO at Pinnacle Brilliance.


Risky investment

Though many players in the cryptocurrency space consider Bitcoin a worthy investment, it’s also a high-risk investment. Asadian thinks that Bitcoin's risk emanates from lack of updates to its underlying technology.

He says, "Though it enjoyed the advantage of pioneer move and paved way for other altcoins, its underlying technology is not up to date. This eventually drives many away towards newer and more innovative technologies, this is considered Bitcoin's long term risk.”

On their part, leading economists, and recently Vitalik Buterin, the co-founder of Ethereum recommend investing in Bitcoin and other cryptocurrencies cautiously.

Robert Shiller, a Yale economist, holds that cryptocurrencies have two extreme possibilities. One is that they could collapse totally and the other is that they could be around for a long time. On his part, Buterin urges crypto investors to be cautious and only invest what they can afford to lose.





Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.