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Author Topic: Is bitcoin a risky investment?  (Read 2970 times)
Seal
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May 29, 2013, 11:41:18 AM
 #21

Yes, it is very risky and we should all manage our financial risks accordingly.

All professional traders and money managers will know about the diversification and hedging of risk. The same applies to any 'investment' in bitcoin. I treat it no differently as I would my stocks and shares portfolio. I try to have as balanced a portfolio as possible with comfortable controlled risks in the areas which I want. I do this by being slightly overweight in a certain asset class.

Good money managers will allocate a proportion of their funds in 'safe havens' such as bonds (low risk, low interest but safe) and a proportion of their funds to high risk high return investments... such as bitcoin.

This was my approach and an original investment of 5% of my entire portfolio in bitcoin soon became 90% of my portfolio. I've diversified after the spike but I've maintained a healthy proportion of my investments in non-bitcoin related securities.

TL;DR, be smart about it, manage your risks and most importantly don't be greedy

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May 30, 2013, 05:48:29 AM
 #22

I think bitcoin will fall in 1 year time. Ripple is coming.




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May 31, 2013, 07:40:29 AM
 #23

Bitcoin is an extremely risky investment.  But I'd say it's about as risky as investing in an individual stock.  Not a mutual fund, mind you, but a stock.  The diversification point is valid, yes, but bitcoin has a risk that most companies don't have: it could be ruled illegal by the government.  I'm not entirely sure that would entirely wipe out bitcoin's value, but it would probably cause a huge drop in the value. 

By the government, here, I'm referring to the United States government since there are of course multiple governments in the world, but the US is, as far as I know, the only one that's been going after bitcoin, or its exchanges anyway.

So far they don't seem to be doing this, but that's not to say that it won't happen in the future.

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May 31, 2013, 07:18:59 PM
 #24

no, just dont look at the charts
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May 31, 2013, 07:20:40 PM
 #25

no, just dont look at the charts

You may chose to ignore the value, but that doesn't make reality disappear.

The reality being that the value of bitcoins can go down dramatically overnight without any promise to go back up.

Saying that bitcoin is not risky makes no sense to me.

Saying bitcoin is equally risky than many so called safe instruments I agree with though.
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May 31, 2013, 07:22:17 PM
 #26

Really great to see a lot of people in the bitcoin community recognizing the high risks of bitcoin.

It was very different in the gold or real estate community.

This community rocks Smiley
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June 02, 2013, 04:49:08 AM
 #27

Yes, bitcoin is risky. But I think it has an attractive risk/reward ratio.

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June 02, 2013, 12:48:01 PM
 #28

I think bitcoin will fall in 1 year time. Ripple is coming.

Don't lie, ripple is the biggest scam, and will be hsut down faster than you can say kentucky fried chicken
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June 02, 2013, 12:58:41 PM
 #29

Almost every article published to date that covers the topic of bitcoin as an investment takes it as a given that bitcoin is a risky investment.  "Only invest what you can afford to lose" is a common sentiment even on the bitcoin forum.

Although I agree that bitcoin should/can be considered a risky investment depending on the context, I submit that a small bitcoin investment is actually a conservative/risk lowering investment for most US investors.  This conclusion is reached when you consider the full context and diversification of the average investment portfolio in the US.  It looks a little something like this: stocks, bonds, real estate, cash and cash equivalents, and precious metals, typically in that order based on the relative weight of the investment.  Note that all of these assets are directly linked to US dollars other than precious metals and real estate.  If we make the assumption that diversification lowers risk, it also makes sense that the average US investment portfolio should not be overly weighted towards US dollar denominated assets.  Sure the US dollar is the world's reserve currency and therefore has a "low-risk" tag currently associated with it, but that doesn't mean it makes sense to have almost all investment assets directly tied to the US dollar.  Proper diversification includes diversificatoin into other asset classes, including non-flationary currencies such as bitcoin.  Considering the potential that non-government backed crypto-currencies have to disrupt the monetary system, even if one believes that the probability is small of a wide scale disruption, it still makes sense to have some assets (i.e. bitcoin) that would benefit from such a disruption.  

I'll admit that bitcoin fits the classic definition of a riskly investment.  However, I would argue that for an investor that currently has a high allocation of stocks and bonds, an investment in bitcoin would actually lower risk for the complete portfolio rather than raise it as it is commonly assumed.

Therefore, I no longer think it is appropriate to broadly classify bitcoin as a "risky investment" to US investors.  It is certainly not a non-risky investment, but all such labels should be taken in the context of a given investors full investment portfolio.  

I think what you have to identify here is what you mention towards the end of your post. 'Risk appetite' is a metric that every investor should be comfortable with measuring. This is subjective to each individual so debating on how 'risky' they deem bitcoin to be as an investment is generally a moot point.

When advising others, I also tell them "Only invest what you can afford to lose". I am heavily invested in bitcoin. Why? Because I know that my risk appetite is massive.

Yes, its ok to know that bitcoin is risky, and to invest heavily as long as you know the risks.

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June 02, 2013, 01:10:22 PM
 #30

Bitcoin is my first and only investment. I've never understood stocks enough to put money in them but with bitcoin I genuinely believe in it. Which has compelled me to invest in it.

It is very dangerous to invest just because you believe in it. But its your way of investment.
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June 02, 2013, 05:40:20 PM
 #31

Investing in bitcions is very risky, but so is investing in stocks. At least with the first you have a much higher chance on a good reward.
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June 05, 2013, 02:34:44 PM
 #32

Bitcoin has a natural market in places like Silk Road and that won't go away.  So the coins will always have value. As knowledge that you can get heroin for resale without having to pledge your left testicle spreads, we can expect that value to be higher than Bitcoin is worth today.  If you put your cash in a savings account here in the UK, you actually get a negative return so Bitcoin is not so risky.


exactly, as long as there is an economy it will have value.

How much, no1 knows.

but i will make an educated guess at - pretty damn high!

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