What do investors need to know before buying Bitcoins?

Bitcoin’s price is volatile and it is extremely likely it will decrease in value over the next six months, says Elvira Sojli, Associate Professor of Finance in the School of Banking and Finance at UNSW Business School

Elvira Sojli: I would be very careful with calling this an investment. As I said, I consider this as a means of transaction. And holding it will give you access to being able to pay for items that maybe you were not able to pay with Australian dollars or US dollars. But other than that, it is hard to see this as an investment. 

Now, there are various types of cryptocurrencies with various technologies attached to them. So it's difficult to lump them under the same umbrella. With this specific focus on Bitcoin, there is a lot of price appreciation coming from the fact that also it's a limited supply. 

So people that are buying it now think that 'because it's a limited supply, whenever somebody else will want to buy it, they will have to buy it from me, so they'll have to pay the price.' Now, each of these coins is worth as much as what it can get you.

So if people do not accept to give you your average car for a Bitcoin, then maybe eventually that value will start coming down to something more realistic. This is something we actually have to keep in mind: what people are willing to do with these Bitcoins at some point in time.

Holding on to them just for the sake of having them doesn't give you much unless they give you access to transactions. And if people are not willing to convert it then their value will decrease with time.

Dr Elvira Sojli is an Associate Professor of Finance and Scientia Fellow Alumni in the School of Banking and Finance at UNSW Business School. For more information and videos visit The Bitcoin bubble: four predictions about the future of cryptocurrency.


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