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May 5, 2013
 

The Risk of the Bitcoin Exchange Market

The Risk of the Bitcoin Exchange Market

Bitcoins came into existence in 2009 and ever since then they have been traded like a real currency by online exchanges. Like any commodity traded through an exchange there are risks involved and bitcoins just may be riskier than most. Here are some of the reasons why bitcoins could be the riskiest investment you could make.

Unregulated and Unrecognized

Currently, there are no governments or financial institutions that recognize bitcoins as a legitimate currency. Some governments consider bitcoins a threat to the security of their currency, leading them to take steps to try to limit the trade of bitcoins. That made bitcoins seem like a pretty risky investment already. The exchanges that operate in the trade of bitcions have had to deal with banks closing their accounts, which leave the people holding shares through those exchanges with no way of recouping their losses. How would you feel if you had money tied up in a virtual exchange that ceases to exist? The threat of this is another reason to tread carefully when trading in bitcoins.

Anonymous Trading Practices

The trade of bitcoins is relatively anonymous, which makes it even scarier for banks and governments. When a bitcoin is mined the user that receives it is anonymous, they were designed that way and that is part of the reason that computer users have taken to them so easily. This has also led to bitcoins being used to purchase illegal goods online. Everything from drugs to computer viruses has been purchased by shady individuals using bitcoins.

No Large Backers Investing in Bitcoins

In addition to the lack of governments and banks that back bitcoins, there are no large investment groups that have holdings in bitcoins. A commodity needs a large amount of investments in order to ensure its value and longevity. Without this, bitcoins seem like a fad that can pass at any moment. Once enough people lose interest in them, their value can drop almost instantly.

A Very Unstable Market

All of the above points lead to one conclusion – Bitcoins are a very risky investment in an incredible unstable market. It won’t take much for the bitcoin market to collapse. The past few months have already seen huge fluctuations in their value. This is part of what scares larger investors away from bitcoins. A small amount of fear that bitcoins are losing value can lead to a snowball effect, causing more and more people pull out.

In early April the value of a bitcoin was around US $130. Towards the middle of April the value doubles to about $260. Just two days after reaching this peak it plummeted to less than $100 a share. While it has since stabilized at around $100 a share, it hasn’t seen the spike that it did in the middle of April. Many people fear that we could easily see another drop just as easily as the one in April. Before getting into the game, it’s best to look into all of these factors and decide if it’s safe enough to risk your money on this unstable market.

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