There has been a dramatic spike in the number of people investing in Bitcoin and other cryptocurrencies. While there is a considerable amount of benefit associated with Block Chain technology and cryptocurrencies there are some important things that you need to understand before you start investing in these new currencies.
Establishing Fair Market Value of Bitcoins
When you invest in something you want the value of it to appreciate but you need to determine whether the price being asked is considered fair. There is no way to establish the fair market value of Bitcoins because there is nothing you can compare it to for reference. If you were investing in a property you could look at what comparable properties have sold for in the last 60-90 days but with Bitcoin you do not have that luxury. Since you have no way to establish the fair market value or intrinsic value (Cryptocurrencies don’t have intrinsic value) you have to be cautious or you run the risk of overpaying for the Bitcoins.
How to Profit from Bitcoins
Do you plan on using the Bitcoins you invest in to conduct transactions or is your goal to hold them until they appreciate in value? There is nothing wrong with either approach but if you are going to be holding the Bitcoins and hoping to sell them when they appreciate in value you should store them on a device that does not pose any risk of malfunctioning. Since Bitcoins do not have any central authority you are not able to recover them if the device they are stored on malfunctions for whatever reason. Prior to investing in any type of speculative asset which Bitcoin could be clustered under it would be wise to weigh all of the potential risks including losing all of your money. If you cannot afford to lose the money you are investing then perhaps Bitcoin is not suitable for you.