Crypto & Digital Assets, FX & Currencies
How to Hedge Against Risk When Investing in Bitcoins
06 Oct 2014
Understanding the Association of Risk When Investing in Bitcoin
Bitcoin has become an exciting new cryptocurrency. Well, it’s not new anymore, but it does provide users lower international trading costs. Bitcoin is also a cross-border cryptocurrency unit which many traders believe could have exponential advantages for the purpose of international business to be more specific, business conducted online. However, for many people, Bitcoin has proved to be an alternative to the everyday banking system and the printing of money by the central bank like it’s going out of fashion.
From the perspective of an investor, Bitcoin’s price has increased over the years, which means that if you owned Bitcoins, you could have beaten other investments nine time out of ten. Various investment analysts comment that if Bitcoin allows itself to come out of the fringe geek circles, which has considerably pushed its value upwards over the years, and is made accessible to the general public more easily, there is a lot of potential for it in terms of price increase.
But it is important to remember that investing in Bitcoin is not for the fainthearted. This is mainly because there are a lot of risks associated with Bitcoin investments and trades. For example, the value of Bitcoin can fall abruptly after an increase. And the volatility levels in the Bitcoin market in 2013 should be enough for you to realize that. However, those volatility levels have died down.
Fortunately, you can do a number of things to hedge against risk when investing in Bitcoin and mentioned below are some of them:
Invest in Alternative Digital Currencies
There is no doubt that Bitcoin has given birth to a strong ‘proof of concept’ when it comes to powerful cryptocurrencies. However, you have to understand it is not the only cryptocurrency out there and definitely not the last. There are various cryptocurrencies you can invest in, a majority of which are now dubbed as ‘alt coins’, and that is solely to differentiate them from Bitcoins.
Many of these alternative coins in the market are simply hopping around, moving from one speedy bandwagon to another, and have little to offer to users in terms of value. However, there are some which have genuinely progressed to compete against Bitcoin in terms of reliability, speed, security, efficiency and costs. If you are an avid digital currency investor, you must consider investing in other digital currencies as well to be diverse.
If Bitcoin prices increase, there is also a strong chance the price of other currencies will increase, although by a lesser margin, because Bitcoin will always take point in creating a new market in which all cryptocurrencies can thrive. And so far, alt currencies have also proven to be fairly lucrative in relation to the Bitcoin.
However, there is also another fundamental aspect you should understand. If, because of any legal or security issue, the price of Bitcoin falls, and you see that the problem can be solved by another digital currency, or if other currencies have features that can gain an even bigger market share, you could well see an exponential increase in the prices of these ‘alt currencies’.
Buy Apple Shares
If you think about, and you won’t have to think hard, Apple is the number one long-term threat to this innovative technology. Believe it or not, the threat from regulators and hackers is minimal compared to the smartphone giant, especially from one that is reputed to be a ‘great innovator’.
Although if you look at it, Apple has never invented anything even if everybody thinks it is an innovative company, what it does is or rather its modus operandi is to search for new technologies invented by different companies and produce the ultimate spinoff version of the same invention to capitalize on the market by launching it just before the original invention is about to hit the market, a product which becomes instantly successful. Apple did the same with MP3 players, tablet computers and high-tech smartphones. However, they are also considering to the same with cryptocurrency.
So, if you think this from a logical and a more financially inclined perspective, it may be a good idea to invest in Apple shares and hedge against the risks posed by investing in Bitcoin. Investing in Apple is safe regardless of what happens to Bitcoin and if they succeed in promoting and creating iMoney, consider yourself lucky.
To conclude, it is important that you consider the aforementioned options if you want to make sure you don’t suffer any hefty losses by investing in Bitcoin.
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