The Motley Fool

Bitcoin Is Extremely Volatile: Should You Invest?

Image source: Getty Images

Bitcoin (BTC) is teetering again on the edge of disaster after a surprise price surge in June. Cryptocurrency supporters said a powerful rebound of the most popular digital asset looms. But the momentum was gone in a heartbeat. BTC fell below US$10,000 last week with a further correction from the current levels predicted.

BTC is seesawing again. The price will spike then collapse in a matter of days or sometimes hours. Would-be investors are turned off. Is there a crypto investment without extreme volatility? Mining company HUT 8 Mining (TSXV:HUT) is the alternative if you want to manage the ride.

HUT 8’s expertise

Mining in the crypto space refers to the process of verifying cryptocurrency transactions. HUT 8 is a BTC-mining company and one of the largest BTC miners in the world. The company is partnered with the Bitfury Group, which is the largest full-service blockchain technology company in the world.

The mining activities use the Bitfury BlockBox AC data centres. There are 85 blockboxes located in Medicine Hat (56) and Drumheller (29) in Alberta. The total installed power in the two sites is 95.2 MW.

Since 83% of Hut 8’s expenses are electricity costs, Alberta is the logical choice to set up the blockboxes data centres. The weather in the province is ideal because a heatwave would not hamper operations at the facilities. Hut 8 obtained a 10-year electricity supply and lease agreements in Medicine Hat.

The risks in Bitcoin

BTC is digitally mined 24/7, but a BTC can’t be created randomly. The BTC system the founders designed set the maximum production at 21 million BTCs. Hence, the cryptocurrency has a limited circulation.

There are 17,834,412 BTCs currently in circulation and 3,165,587 left to be mined. BTC miners like Hut 8 earns from the block rewards. Should the limit be reached, Hut 8 will continue to derive revenue from transaction fees.

Digital heist or theft is a major concern to investors. If a BTC platform is compromised, it would be difficult to recover the investment. There are no regulations in place to help the victims. The number of stolen BTCs has reached 970,000. These coins might have been sold by the hackers and are still circulating.

Alternative to Bitcoin

Instead of buying BTC, investors can purchase Hut 8 stock to gain direct exposure in the cryptocurrency market. What is happening to BTC today could mean trouble ahead. It’s still a risky play. You need to manage your expectations that the market value of BTC will increase tenfold like it did before.

Hut 8 is an interesting and safer investment. Cryptocurrency exchanges are largely unregulated and therefore are more exposed to fraud and failure. A mining company like Hut 8 that uses blockchain technology has the potential to increase in value when cryptocurrencies are institutionalized.

In the meantime, you don’t want to risk losing your investment in BTC because of the high volatility. While HUT 8 is concentrated on BTC mining, new applications of the blockchain technology, which the company uses, will be discovered soon.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.