- 06/02/2018
- Category: Commentaries
This part will explore the issues surrounding cryptocurrency investment and trading. For those who are curious enough, or are contemplating to enter the industry should take a look at the considerations below.
Q4: Is it promising to invest in Bitcoin or any other cryptocurrencies?
Deciding on whether it is promising to invest in Bitcoin or not depends on the time and our expectations. On January 1st, 2017, one Bitcoin was worth around US$ 997. By December 19th it was worth more than US$ 19.000. The number dropped to US$ 13.800 by the last day of the year.[i] Since its first appearance in 2009 until today, Bitcoin’s value has grown exponentially since April 2017. However, a closer look at its daily or monthly basis recently reveals that Bitcoin’s has been fluctuating. The condition is relatively similar to other cryptocurrencies.
The development of cryptocurrencies managed to invite controversies among scholars and economists. Julian Hosp, a cryptocurrency entrepreneur, said that Bitcoin might hit US$ 60.000 with a possibility of collapsing as low as US$ 5.000 shortly.[ii] Goldman Sachs has even reported considering launching a trading service for Bitcoin to serve their clients.[iii] A few government banks have adapted by regulating cryptocurrency, while other government banks have expressed their concerns and warnings about the dangers of this cryptocurrency.[iv] This situation depicts that some are optimistic and some are not toward the rise of Bitcoin. In short, nobody knows for sure how cryptocurrency might develop in the long run.
For people who intend to be “traders” (those who trade cryptocurrency in short-time period), cryptocurrencies can be very interesting and profitable. They can raise massive profit by exploiting the rise and fall (and the bubble) of many cryptocurrencies in daily or even minute-basis. Yet, the risk is also enormous, and if not managed properly could make the trader suffer heavy losses.
Q5: Is it safe to invest in Bitcoin or any other cryptocurrencies?
The issue of safety covers the financial and digital-security aspects. Financially, unlike conventional currencies, cryptocurrencies are more prone to bubble and trade manipulation (ce.g., large transactions done by few unknown individuals may quickly damage or create bubbles in the market) since it lacks regulations or an authority that can safeguard the wild dynamics in the market. This is essentially the main reason why some government banks are cautious with cryptocurrencies. Since safety is relative, what we know for sure is that cryptocurrency is less safe than conventional currencies we use today. This makes its short-term trading and long-term investment activities more worrying compared to conventional stock exchange activities, for example.
Regarding digital-security, cryptocurrency trading can be considered as safe, although it also has its drawbacks. Bitcoin, for instance, uses a multi-verification method which involves other account owners to validate transactions. This complicated process makes it hard for hackers to manipulate and directly steal from the system. Hence, the digital money we transfer can be properly recorded and delivered. Nonetheless, the threat lies on the cryptocurrency trading platform and digital wallet. Cryptocurrency trading platforms like Bittrex, Bitcoin.co.id, and Bitthumb are not immune to cyber attacks. An incident happened to Bitfinex in August 2016 which caused more than US$ 60 million worth of Bitcoins stolen because the platform was hacked.[v] Beside trading platforms, digital wallets could also be a target. The digital wallet is a place to store our cryptocurrencies. The wallet can be saved online using cloud computing technology or offline in our personal hardware. Each type has their own risk. The digital wallet in the cloud can be hacked, and the digital money can be stolen. On the other hand, the offline digital wallet can also be disturbed by virus attacks which may cause the owner(s) severe losses.
Conclusion: Should you invest or trade in Bitcoin?
If you want to learn the dynamics of cryptocurrency market and are ready to embrace the risks, it might be worth to invest in Bitcoin or other cryptocurrencies. However, you might fail to recover your initial investment in a few weeks/months. For this purpose, small to medium amount of investment is advised. If you seek for long-term investment, other established methods such as stocks and properties are much more recommended than trading in cryptocurrencies.
However, if you do not want to deal with Bitcoin’s high-risks and extreme fluctuations, most likely this cryptocurrency is not the right currency for you since trading in Bitcoin is very demanding. You will need to monitor the stock chart movements and developments, even to a minute and second-basis. Therefore, be aware and be wise.
Editors: Diah Ratna Pratiwi, M.Dev & Nabeel Khawarizmy Muna, SIP Picture: pixabay
[i] Coindesk, (2017). Bitcoin (USD) Price. [online]. Available at: https://www.coindesk.com/price/ [Accessed 24 January 2018].
[ii] Murphy, D. (2017). Bitcoin could hit $60,000 in 2018 but another crash is coming, says startup exec. CNBC, [online]. Available at: https://www.cnbc.com/2017/12/26/bitcoin-price-in-2018-could-hit-60000-but-another-crash-is-coming.html [Accessed 24 January 2018].
[iii] Cheng, E. (2017). Goldman Sachs launching trading desk for bitcoin, report says. CNBC, [online]. Available at: https://www.cnbc.com/2017/12/21/goldman-sachs-launching-trading-desk-for-bitcoin-report-says.html [Accessed 24 January 2018].
[iv] Lee, Y. N. (2017). From China to Singapore, Asian countries are increasingly uneasy with the rise of bitcoin. CNBC, [online]. Available at: https://www.cnbc.com/2017/12/22/bitcoin-china-singapore-japan-issue-cryptocurrency-warnings.html [Accessed 24 January 2018].
[v] Higgins, S. (2016). The Bitfinex Bitcoin Hack: What We Know (And Don’t Know). Coindesk, [online]. Available at:
https://www.coindesk.com/bitfinex-bitcoin-hack-know-dont-know/ [Accessed 24 January 2018].
