Bitcoin is a highly speculative investment. Why caution is required

With the price of a bitcoin hit record highs of more than $ 10,000, more and more ordinary people consider investing in these cryptocurrency. The recent price surge, however, comes with a huge risk. Investors should be prepared for the possibility that they could lose their entire investment.

Bitcoin was launched in 2008 by an anonymous author with the name Satoshi Nakamoto as a means of transactions between participants without an intermediary. Since the beginning of this year, the price of bitcoin has increased by 1,300% as more and more consumers flocked to it hoping to benefit from its increasing popularity and the corresponding increase in value.

Cryptocurrencies no currency at all. As the Financial Times explained, bitcoin is a string of computer code, which means that the new bitcons can be made – up to an agreed limit – with computers that get the right to do so by solving complex puzzles. Transactions are recorded in a database called blockchain

Bitcoin, like other assets such as gold, do not generate revenue. You have to sell it to realize any value. And, like gold and other currencies, can be transferred peer-to-peer.

Part of the unease about bitcoin is that, along with other cyptocurrencies, challenging the traditional role of banks and the central bank. In the classical world, the bank acts as an intermediary by providing loans from the deposits they take and of funding from the central bank. The central bank uses the rate at which it provides these funds as a lever to ensure price stability. The introduction of this model cryptocurrencies threatened because banks are no longer required to fund medium and there is no central bank to ensure that prices are stable.

Faster fears about Bitcoin center on the recent dramatic rise in value. There is anxiety in the market that the flash crash may soon fall cryptocurrency more than $ 1,300 in bitcoin Bitfinex minute exchange. It recovered to above $ 10,800.

Gema long standing flash crash warning that the bitcoin is set to end in tears. Most recently Jamie Dimon, CEO of JPMorgan, one of the world’s largest investment bank stated that he would fire any employee trade bitcoin to be stupid.

In a highly unusual alliance, the words echoed by economics Nobel laureate Joseph Stiglitz, who has gone further with bitcoin grounds that:

should be banned.

All of these are warning signs were clear that the professionals do not believe the promises of lofty crypto fans.

factors blockchain
There is no doubt that the Bitcoin – and blockchain in particular, the technology behind it – has the potential to revolutionize the financial services industry.

A blockchain function as transparent and incorruptible book digital economic transactions, listed in chronological order, which operates on a peer-to-peer.

Basically, the technology enables the exchange of value occurs in the peer environment with conflicting interests without the need for a trusted intermediary. That, in essence, eliminating the need for a bank or financial services company that fulfills this role.

The use of this technology is not limited to financial transactions. hardly any of the values ​​can be traded in blockchain a.

But no matter how useful blockchain underlying technology, or how widely applicable, there are real and substantial risk involved in bitcoin.

Volatility versus back
The first, and most significant risk is that compared with the currency, stocks, or gold, bitcoin is very volatile. Bitcoin volatility against the US dollar almost six times the volatility of the Rand US dollar. While this is great in good times, it is potentially devastating for investors at a bad time.

When professional investors decide which assets to hold, they see both return and volatility of the asset. Only investors with a healthy appetite for risk will

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