Beginer Investors guide.

Bitcoin investing guide.

Bitcoin investing guide.

Posted by Kaan Dilek On July 28, 2014 0 Comment Edit

Bitcoin is said to be relative to the early stages of the internet, with millions being spent on building the foundational iinfrastructure to provide an evolutionary and a down right disruption to the remittance, forex, gold/silver, payment/credit card and micro payment networks collectively worth trillions, bitcoin has caught the attention of various levels of investors from within the periphery, from institutional to private investors speculating the late 2013 spike where bicoin went from $200 to $1100 in matter of days then crashing weeks later will happen again.

To date of conception in 2008/9 to its peak in November 2013 the bitcoin price has multiplied by several thousand times. This volatility has left bullish investors checking the price on an hourly basis and conservative investors cautious on the payment platform, but one cannot dismiss the millions in venture capital funding being poured into the cultivation of the payment system implying that an anticipation that bitcoin will reach mass adoption thus effecting the trading price.

Should I Invest in bitcoin?

Bitcoin is as classic example of a high risk, high reward investment, bitcoins deflationary nature of 21 million, each coin has potential to be a rare commodity should the adoption curve swing towards its favour. But the risk is very real and omnipresent.

Disruptive technology adoption trends are charted with whats refered to as the “s” curve.

The early adopters and innovators within the exponential curve, should bitcoin become ubiquitous, will benefit the most out of their investments, at the time of writing this article we are still with the early adoption stage of the growth cycle.

Examples of s curve adoption.

Facebook:

Amazon and Dropbox.

It is very important to note that the stock price is very volatile during these adoption curves also traditionally this trend is pre IPO (initial public offering) and SEC (Securities and exchanges commotion) regulations state that non institutional and private investors may not participate in pre IPO so this volatility is not seen nor available to the public and is only available to institutional investors. This is why private investors are not used to such volatility and is the opportunity that bitcoin presents to the public otherwise not available within traditional investment practice. However several very real risks need to be considered prior to investing.

Is bitcoin in a bubble?

Bitcoin does exhibit characteristics of a traditional bubble model. These are inflated by speculation fever where an asset price is anticipated to multiply several times in a short amount of time. On that basis bitcoin is currently the undisputed champion of the world multiplying several tens of thousands of times since its inception till its height in November 2013.

Bitcoin price boom and bust between November 2013 to January 2014.

Comparing this price profile against the model of a classic bubble chart, well……..

Speculation drives an estimate fluctuating 7% of the total bitcoin price. Regardless of this acute correlation bitcoin still yields attention from investors and merchants. Again, bitcoin stands to disrupt FOREX, remittance, credit card network, micro payments and gold/silver or store of wealth markets collectively worth trillions. Bitcoin provides this service inherently within the blockchain and the distributed and decentralised bitcoin network nearly for free. This utility and robust resilience is what bitcoin investors, institutional and private are talking about.

A store of wealth.

Correlation’s between bitcoin and precious metals specifically gold  have been made on several occasions, referred to as “digital gold” and is said to be modelled on golds characteristics, however bitcoins status as a store of wealth is anything but unanimous.  Gold has thousands of years of reputation whilst bitcoin is only several years old and stands relatively untested. This is a area that can only be speculated that will develop as bitcoin matures.

Price Volatility

Wild swings in bitcoin are a common occurrence, this is attributed to several factors such as:

• ¥ Negative and positive news
• ¥ Investor confidence
• ¥ Speculation fever
• ¥ Large buy/sell orders (whales)
• ¥ Infant market cap
• ¥ Regulatory pressure
• ¥ Lost bitcoins
• ¥ Mined bitcoins
• ¥ Adoption curve

51% Attack.

This is stated to be a plausible but not very probable scenario, this attack is possible when a single mining pool controls 51% of the bitcoin mining infrastructure, granting the controller the ability to manipulate the public ledger (blockchain) by double spending coins and not validating transactions within the network and effectively compromising security. Accumulating 51% of the mining network would yield a price tag of millions and millions of dollars in mining hardware, compromising the bitcoin network by controlling the majority and manipulating the blockchain would also mean compromising a multiple million dollar investment in mining hardware as security and anti fraudulent practice are aspects of what gives bitcoin value. However this is still a plausible scenario, 51% capacity has been reached by non malicious mining pools in the past whilst not launching an attack this scenario is a plausible one.

Account Hackers.

Bitcoin is purely digital making it perfect for tech savvy hackers to infiltrating online and desktop wallets. If purchased, bit coins should be stored securely.

Loss of Bitcoin.

The majority of bitcoin that have been lost, have been via forgotten private keys, deleted desk top wallets or crashed and damaged hard rives.

Regulations.

Nothing has existed quite like bitcoin has ever existed so to classify it from a regulatory perspective has proven to be quite difficult. Several states have embossed a flat out ban whilst others are more receptive. Regulation will ultimate have a massive role in bit coins future. It is important to understand that no one regulatory body has authority over bitcoin nor will it ever. Bitcoin will be regulated on a state to state basis.

Technology is a lucrative and notoriously unpredictable field of investing. Having the lead in market momentum does not mean that it will not be overtaken by superior technology, facebook consumed the  myspace market and google, yahoos’ and iPhone the blackberry,.

Will this happen to bitcoin?

This is an introduction into investing in bitcoin not intended as advice. Consult investment experts for guidance.

- See more at: http://www.worldbitcoinnews.com/bitcoin-investing-guide/#sthash.qFgcoH6U.dpuf