Burnt By Bitcoin Investment?

The Bitcoin price plunge in December 2013 that saw the cryptocurrency lose half its value within days brought to surface many horror stories of life savings lost in the blink of an eye. Undoubtedly it is made to sound worse than it actually is by media outlets hungry for another big story. And this was seen recently on a Chinese government backed TV channel that broadcast a documentary outlining the Bitcoin casualties in December.

However, this should not be a reason to ‘demonize’ the cryptocurrency or altcoins out there. The past 5 years have been tumultuous for economic prospects across the globe with people lose their savings, houses and jobs and it had nothing to do with Bitcoin or cryptocurrency. Furthermore the hype around this brings many issues to light that is often overlooked when Bitcoin horror stories are reported.

Bitcoin Is Not An Investment Vehicle

The fact of the matter is that cryptocurrency was not intended to be used as an investment vehicle but rather as a tender that existed outside of the usual channels. Bitcoin and other cryptocurrencies were meant to be a means of paying for services or products across international borders without high fees and currency fluctuations. It is not controlled by any single authority and works independent of the established foreign currencies across the globe.

The rise in the Bitcoin price in the second half of 2013 saw many people jump on the cryptocurrency wagon to make a buck – in other words, they were using Bitcoin as an investment. It has value and was increasing rapidly so it sounded like a good investment. So does certain stocks, government bonds, and pre-2008 even an interest yielding bank account was worthwhile considering. None truly had guarantees for the return on investment. Bitcoin is no different.

Investment Is A Risk

Despite the fact that this was not its original purpose, there is no crime in any person to wanting to grab the opportunity to increase their personal wealth provided that it is legal. Seeing the return on investment in putting their money in Bitcoin, many first time Bitcoin investors thought it was a good move. And the market hype was such that a person could double their investment within weeks or months.

What many people fail to realize is that all investments hold risk. Some are high, others medium and then there is low risk. But the point is that risk always exists if you want to grow your investment. Similarly investing in Bitcoin was a risk and just as much as a person could have profited, there was the potential for loss as well.

Those who placed their life savings into Bitcoin, as the Chinese TV documentary reported, were undoubtedly placing themselves in a precarious situation. These days your money is not even safe in a bank, as was seen during the global meltdown in 2008 and more recently in Cyprus. One of the main principles of investing is ‘play only with the money you can afford to lose’.

High Risk, High Reward

Think of any investment vehicle where you could double your money within 6 months and you know that it is high risk. Now what if you were told that you could multiply your money by ten-fold in 6 months? You would think that it is either a scam or a very risky investment. That is what happened in 2013 – if you bought Bitcoin in July 2013, your investment would have grown by ten-fold by early December.

There is no denying that Bitcoin is volatile, given the lack of regulation and a central authority as well as the actions of speculators and the impact of anti-Bitcoin legislation. However, it should not detract from the fact that with a high reward investment comes the high risk. If you bought Bitcoin at $1,000 in December 2013, you would have halved your investment within days when the price plunged.

Like any investment, the trick is being in for the long haul. Any person who claims to have lost their life savings would be dishonest. At worst they would have come out with half their investment if they bought at the peak and sold at the lowest price in December 2013. The question that should also be posed is why not wait a little longer to see if the Bitcoin price recovers? Which it did although not to the all-time highs seen in December 2013.

The issue is the quest for “quick and easy money” often fueled by greed. Investors rightfully want a favorable return on their investment. However, intelligent investors would not cry foul when they opt for a high risk investment and then lose half of it due to market fluctuations. Furthermore they may not immediately pull out the investment but rather wait a period of time for the market to stabilize again.

It comes back to two points mentioned in this article – “play with money that you can afford to lose” and do not be surprised by losses if the investment is high risk. That is how the game goes and how it is played in all financial markets. Placing the blame on the investment vehicle, in this case Bitcoin, is unfair and ignorant. As the saying goes, “hate the player, not the game”.

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