News that Goldman Sachs Group Inc. (NYSE:GSC) was considering setting up a trading operation dedicated to bitcoin and other digital currencies, caught the attention of Wall Street. Cryptocurrency like bitcoin is controversial at best.
It isn’t known if Goldman will follow through. In the meantime, the firm’s interest will, at the very least, promote talk about bitcoin as an investment security.
Related: TRADING VERSUS INVESTING
The China Problem
In recent weeks China has banned exchanges that trade bitcoin – mostly due to fear the virtual currency would promote capital leaving the country. This isn’t the only development making investors nervous. J.P. Morgan Chase & Co. (NYSE:JPMC) CEO James Dimon, whose bank is the largest dealer in global currencies, called bitcoin a “fraud” good only for drug dealers. Dimon said he would fire any employee who traded it.
In the meantime, Japan’s government embraced bitcoin and has created regulations to legitimize its trading. India and Sweden have considered creating their own virtual currencies, and the U.S. Federal Reserve has studied bitcoin and the technology behind it.
How It Works
Bitcoin is digital. It runs on a decentralized network of computers, not a centralized ledger under the control of a central bank or government. Investors can exchange value directly, without a middleman.
The technology behind bitcoin is called blockchain. Even large banks like J.P. Morgan and Goldman have shown interest. They have also shown reluctance, unconvinced about the security of the currency and concerned that early participants have included anarchists and drug dealers.
Price Is Up
What’s hard to ignore is the fact bitcoin’s price has soared this year. It started out at $969 and went as high as $5,000 recently before pulling back. Another digital currency, Ethereum, recently traded at $400 after ending 2016 at $8. Nearly $150 billion worth of digital currencies are in circulation.
Goldman’s interest is stoked by a growing number of institutional investors already wagering on the currency. If Goldman goes all-in, markets in bitcoin could spring up much like those dealing in Japanese yen or shares of Apple Inc. AAPL.
Enter With Care
For interested investors most experts suggest caution. As with any volatile security you should only invest as much as you are prepared to lose. If you are comfortable with the notion of losing $1,000 but not $2,000, stick with the lower amount, according to most experts. Buy a tiny amount and track its price. If it goes south, you’ve only lost what you were willing to lose, say the experts.
Keep Security In Mind
It’s wise to think of bitcoin much like you think of online banking. Take care with your credentials to avoid having your currency stolen. You can secure it yourself or use a third party like Coinfloor.
Again, looking to experts for advice, they suggest keeping your bitcoin security credentials offline to avoid concerns about hacking and theft.