Is this a right time to buy Bitcoin?

If you are wondering whether digital currencies like bitcoin and ethereum are a wise asset group to invest your money in, this article will come in handy.

There’s a certain amount of mystery around bitcoin and other cryptocurrencies. Satoshi Nakamoto is the pseudonym used by the presumed person or people who developed bitcoin, created and deployed bitcoin’s original implementation software and conceived the first blockchain database.

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What is bitcoin and how does it work?

The concept of digital monies such as bitcoin that people send online is not that complicated in itself — after all, transferring money from one online bank account to another is doing exactly that. Cryptocurrencies use blockchain technology — a way of sending data in cyberspace — to do this. But, different from normal currencies like dollars and pounds, cryptocurrencies are “decentralised”, which means they are not regulated by a financial authority, like a government or central banks.

This brings some advantages: cryptocurrencies are global, meaning they have the same value in every country. This feature makes them much easier to transfer from person to person across the globe, without the headache of exchange rates.

Is bitcoin a good investment?

Bitcoin is at the (very) “high-risk” end of the investment spectrum. The price of cryptocurrencies is volatile; some can go bust, others could be scams, and occasionally one may increase in value and produce a return for investors.

As Danny Cox, from the financial services company Hargreaves Lansdown, puts it: “Cryptocurrencies could remain niche, become mainstream, vanish without trace or anything in between, and any investment should be considered as very high risk.”

Mark Hipperson, chief executive of Crypto platform Ziglu, argues the case for digital coins going mainstream. “With more and more big brands such as Tesla and Starbucks accepting crypto, [Starbucks is testing a way to let users of its mobile app pay for coffee and food with the cryptocurrency Bakkt Cash, for example] there now seems to be little doubt that one day soon crypto will be accepted at as many places as traditional currencies.”

As with any investment, do your due diligence and don’t pin all your hopes on one company or one cryptocurrency: spread your money around so you spread the risk and only invest what you can afford to lose.

How risky is investing in cryptocurrencies?

If you want to invest in crypto, ponder first whether you would buy a house in Rapid City, South Dakota. This city in the United States has just over 75,000 inhabitants and is reportedly one of the places with the most unpredictable weather on earth, where snow blizzards and summery thunderstorms occur without warning, before everything calms down again and temperatures rise dramatically the very next day. The weather of Rapid City is an apt metaphor to describe the behaviour of bitcoin & co: it can be totally bonkers.

Is there a less risky way of investing in crypto?

“Stablecoins” could be a less risky way of investing in cryptocurrency, according to Gavin Brown, associate professor in financial technology at the University of Liverpool.

“Stablecoins continue to develop and be the potential solution to the problems of volatility and credibility for cryptoassets. In contrast to cryptos, stablecoins have actual assets behind them, like regular currencies,” he says.

DAI and TUSD are two of them, which are both backed with the US dollar (one coin is worth $1). DAI is hosted on the Maker (MKR) platform, and crypto platforms can also be safer to invest in than the actual currency, he says. “Risk is therefore low but gains are very low or nil too.”