Bitcoin
Why Bitcoin trading is risky business
The Bitcoin exchange rate fluctuates wildly, with dizzying followed by almighty crashes – so, can the potential rewards of investing outweighs the huge risks?
Bitcoin's volatility
In 1637, the Dutch tulip market collapsed dramatically, when tulip bulbs had, for years, been a favoured investment. The rising price made them seem a secure and lucrative business, and everyone wanted to get in on the action. The consequence was countless bankruptcies and an almighty recession.
Almost 400 years later, many experts see Bitcoin as the new tulip bulbs, with some pointing out that it would be very unusual for such a bubble to inflate over several decades, and to continue to do so after every crash.
Rewarding risk
The Bitcoin exchange rate has been extremely volatile in its short history; it’s been through booms, where the price reached huge heights, and then massive crashes.
Tweets by Tesla boss Elon Musk have been enough to make the exchange rate yo-yo. A loss in value of 90 percent is possible, and any investor has to learn how to handle that.
Nobody can even guarantee that Bitcoin will even exist long-term, so if you want to know if there is a risk that you will lose everything, then yes, there is. But that extreme volatility is also why the risk can be worth it.
How much should I invest?
Bitcoin has gone from being worth nothing to more than $50,000 within a few years. Anyone who could afford to ride out the crashes – and perhaps then bought more – is better off now than when they started, which is why the Dutch tulip mania is often used as a point of comparison – it is the mother of all speculative bubbles after all.
Ultimately, there’s only one sensible way to deal with the risky cryptocurrency: invest only as much as you can afford to lose should the worst come to pass.
