Bitcoin continues to soar at prices many skeptics once believed were never attainable. We only just pointed out that some Goldman Sachs analysts see $8,000 for bitcoin before the end of the year as a real possibility – and at this point, that doesn’t even seem like that much of a stretch! The cryptocurrency topped $1,000 early in the year and skyrocketed over the summer. Once-outlandish bitcoin projections now seem decidedly more realistic. But should investors still be wary?
We’ll start with some of the positive factors helping to boost bitcoin’s surge. For one thing, it’s simply becoming more accepted around the world. Some time ago an overview of government and financial system policies toward cryptocurrency accurately pointed out that bitcoin is largely unregulated around the world – and since the time of that writing, the statement has only become truer. A few major countries that once had fairly strict regulatory positions toward cryptocurrency have eased up (most notably in the Far East), which has in turn opened up new markets for bitcoin to thrive in.
With these new markets come new opportunities to use bitcoin as a transactional currency. We are still nowhere near universal acceptance of cryptocurrency as a valid currency, and it remains up to each individual merchant – online or in-person – to determine whether or not it can be used. However, the more regions become open to bitcoin exchanges, and the more people adopt them, the more merchants are likely to get on board, ultimately increasing demand (and potentially keeping prices high).
Beyond these factors, there’s simple investment psychology to consider. Whether or not it’s a good strategy, many will be tempted to buy in while bitcoin is soaring. The mentality is simple to follow: sure, you missed out on buying bitcoin when it was under $1,000; but why not buy it at $6,000 if it’s on its way to $8,000 or $10,000? Better late than never! Again, this is not necessarily a sound strategy – many investors would likely laugh it off – but it’s a mentality that’s likely to be fairly common, and it may well result in more investments. Bitcoin is not only a tempting purchase, but also a very accessible one compared to most stocks and commodities.
With all of this said, however, flocking to bitcoin might not be the best idea, at least going by some signs and advice. Consider, for instance, that bitcoin just recently rebounded over $1,000 in virtually no time – but did so after losing almost a third of its value! Investors, particularly looking at the long term, are accustomed to accepting some level of volatility. Particularly in cryptocurrency, it’s part of the game. But imagine you had a hefty stake in bitcoin and you happened to be watching as the cryptocurrency lost a third of its value. Might you have felt the need to sell quickly and cut your losses? It’s certainly conceivable that such a sudden and drastic drop would induce some panic.
Furthermore, in a broader and less reactive sense, some experts are still advising people to stay away from bitcoin and cryptocurrency in general – at least as means of investment. Larry Berman, a business and finance expert, just recently said that investors should leave bitcoin alone, citing not a recent trend or sudden shift in prices, but the long-term value of an asset with no intrinsic value. Berman suggests that we’re still in a bubble, that very few people actually own bitcoin (meaning the supply is tied up in a small population), and that governments will never permit bitcoin to become the full alternative to fiat currency that some imagine it can become. As he rightly points out, governments need a say in money so as to regulate the economy, control interest rates, etc.
Bitcoin investment has always been a tricky prospect, and this is not a definitive warning against it. But it’s important not to get caught up in the gaudy numbers at which the cryptocurrency is currently trading. There are still warning signs balancing out the optimism.