Bitcoin is a digital currency that is minted as well as maintained digitally. The cryptocurrency now in news for quite some time is gaining the attention of investors who in the aim of currency appreciation are ready to splurge their surplus and cash in any likely gains in not so distant future. Adding to it, with the government's step towards regulating and legalizing bitcoin, it is only going to garner more attention of investors.
As the currency shall not be minted in huge amount as is claimed by creators of digital currency and the demand supply gap has seen to push the price of the digital currency by leaps and bounds. Investors have capitalized on the substantial price change. At the same time they have lost a huge amount on a daily basis.
It is also suggested that if you happen to take bet on this alternative new investment option much like other financial instruments apply rupee cost averaging principle. That is do not include bitcoins in your portfolio in one trade but add them at different price levels over the period say a fixed number in a month. Also, since bitcoins are highly risky owing to high volatility ensure betting on only the amount which you can afford to lose. Also, do trade in them from reputed institution or exchanges dealing in them.
Over the last few years, bitcoin is suggested to offer an annual return of upto 30% in a year.
Few of the risk associated with Bitcoin Investment
Market Risk: Demand-supply gap in bitcoins can result in heavy volatility as the digital currency shall be mined in a limited way.
Technology Risk: Bitcoins are a completely digital product and technology anytime in future course can make it completely worthless.
Financial Risk: Much like the financial markets, investors aiming appreciation in currency,bet in on the currency at lower rates and exit when the price increase.
Legal Risk: " The absence of counter parties in usage of virtual currencies including Bitcoins, for illicit and illegal activities in anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws," Minister of State for Finance, Arjun Ram Meghwal, said in a written reply in the Rajya Sabha. Demonetisation which led to a sudden sharp increase in the price of bitcoin is now being mulled for legalization but much to be done prior to its formal legalization.
Security Risk: Bitcoin investment which entails maintenance of the currency in the digital wallet company trading in them. Also is exposed to security risk. RBI in lieu of trading in bitcoins had warned users, traders and other parties that they shall engage in trading in them at their own risk.