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Is it too late to invest in Bitcoin?

Even though Bitcoin has been there for the last seven years, it is now that investors are increasingly looking in to this assets classes.

January 17, 2018 / 05:20 PM IST

Praveenkumar Vijayakumar

Finding the right time for investment is very elusive. It is hard to perfect your entry to a specific market. You need to have a long-term perspective for any kind of investment to reduce the risk of volatility and risk of losses.

Bitcoin and other cryptocurrencies had a stellar growth in 2017 fetching returns from 1,500  percent to 15,000 percent. Bitcoin’s sharp rise from USD 450 per unit in May 2016 to  USD 19,000 per unit in December 2017 had generated enough euphoria across the globe to make Bitcoin and other cryptocurrencies as a dream investment asset. In India too, early investors reaped astonishing profits as the price marched from Rs 65,000 in Jan 2017 to Rs 14 lakh in December 2017.

Even though Bitcoin has been there for the last seven years, it is now that investors are increasingly looking in to this assets classes. Only a negligible number of Indian investors could ride on this Bitcoin price wave as due to uncertainty from the regulators and lack of awareness about the Bitcoin and crypto asset classes, the astonishing growth in cryptocurrencies didn’t give considerable wealth to Indian investors.

The exponential price growth has given birth to extreme volatility in Bitcoin and other cryptocurrencies. Even though Bitcoin gained considerable traction as a speculative instrument in 2017, the adoption of Bitcoin as a payment system has largely been muted. The increased transaction cost, delayed network confirmation, extreme volatility in prices and constant forks coming in, Bitcoin could not establish itself as a payment mechanism. Real use of the currency and the blockchain infrastructure by the enterprises will be a deciding factor of the sustenance of the crypto currency. Additionally, the advent of several other cryptocurrencies, such as Ethereum, Ripple and its own rival Bitcoin Cash, has contributed to the skepticism that in near future value of bitcoin might retrace to lower levels.

Does that mean the best time to invest in bitcoins has passed? Let’s figure out the factors that are in favor of Bitcoin and against it.

Bitcoin as an asset class: The steady growth in the rate of bitcoin has attracted participants from across the globe. With traditional investment avenues like real estate and gold underperforming in the recent years, riding on a revolutionary technology, bitcoin produced a staggering return on investment for the investors. With majority of the established funds and financial institutions staying at the sidelines waiting for regulatory acceptance of bitcoin, positive stance from the regulators by giving the bitcoin an asset class status can attract fresh capital and can push the bitcoin price to unseen waters.

Experts are of opinion that stringent monetary policies, implemented by governments and banks, are driving customers towards assets, such as cryptocurrencies that are immune to changes in the traditional market. The decentralized nature of bitcoin offers investors the opportunity to diversify their investments from underperforming assets to cryptocurrencies, the most performing asset of 2017.

Bitcoin Halving Continues: Unlike other investment resources that are increased when demand is on a rise, bitcoin production follows the strict protocol of introducing no more than 21 million units. More than 16 million units have already been launched and creation of the remaining bitcoins will be spread across the next 12 years. The result would amount to growing scarcity of bitcoins and constant scaling of per unit value as demand increases.

Global nature of Bitcoin Trading: Since Bitcoin is traded in multiple exchanges and extensively traded among peer-to-peer globally, as and when volume increases, investors can be assured to offset their holdings wherever they want. The acceptance of Bitcoin in multiple countries makes the crypto currency and easily tradable instrument. Due to the decentralized nature of Bitcoin blockchain, the transparency adds up to the benefit of bitcoin trading. The holding and transfer of Bitcoin is extremely easy as the sender only requires recipient’s digital wallet ID to complete the transaction instead of their names, bank account or card details.

Complete control of Bitcoins: The decentralized structure of bitcoin network ensures that no one but the holder has the control over his/her money. Users do not have to worry about sending or receiving money anywhere in the world without worrying about authoritarian regulations or bank holidays. Moreover, the bitcoin blockchain allows the parties involved in a transaction to verify the details. However, these details are not connected with the personal information of respective users.

The Blockchain mania: It might be very difficult to find an enterprise who has not thought about the experimenting with the blockchain technology. The more the blockchain concept is adopted, Bitcoin blokchain being the largest blockchain network of trusted nodes will find its importance in the future governance to improve trust and transparency.

Now that we have talked about the positive factors of Bitcoin, let’s dig in to the possible deterrent for Bitcoin’s future to establish a global currency.

Government restrictions: Due to the anonymous nature of Bitcoin transactions, it is highly impractical for the governments to allow the bitcoin transactions in its current state. More and more AML and KYC guidelines from the regulators will put the privacy loving bitcoin users under scrutiny and can impact the Bitcoin’s price movement to a great extent.

Currency and huge fluctuation doesn’t go hand in hand: May envision Bitcoin to become the global currency. If it has to be a global currency, then the volatility will have to come down considerably. As and when the volatility is reduced, the speculators might perch to other crypto currencies that can give a better ROI.

Stiff competition from forked brothers and other Peers: Now that the forking of Bitcoin blockchain has become a regular affair, and the forked blockchain come up with better operational capabilities, the current BITCOIN might come under great pressure if scalability issue persists. Smart contract enable blockchains like Ethereum also can give a tough competition to Bitcoin in the days to come.

With odds weighing on both sides, 2018 will provide a clear direction for Bitcoin’s status and its sustainability in the mainstream financial market. Irrespective of whether Bitcoin is going to reign as leader of the crypto pack or not, a long term investment spread across the top crypto currencies can yield a handsome return for the investors.

(The writer is Chairman & CEO of Belfrics Global)


Note: Moneycontrol advises caution while investing in Crypt0currency.
first published: Jan 16, 2018 09:39 am