Bitcoin Prices Are Going Insane: 3 Reasons Why You Should Avoid it

There are inherent risks to Bitcoin and the HIVE Blockchain Technologies stock. It would help to understand the cryptocurrency market and crypto mining operations first before investing in either.

| More on:
A depiction of the cryptocurrency Bitcoin

Image source: Getty Images.

Insane is the word to describe Bitcoin’s red-hot streak to begin the new year. Crypto followers are celebrating because the world’s most popular digital currency is on a tear. From a COVID low of $4,970.79 on March 12, 2020, Bitcoin finished 2020 at $29,001.72, or a fantastic climb of 483%.

The momentum is not stopping, as Bitcoin is trading higher at $32,368.61 as of January 4, 2021. While many are ecstatic over the latest developments, some investors recall the disaster that befell them. Bitcoin shot up to nearly $20,000 in late 2017 until the bubble finally burst and sent the digital currency crashing.

The plummet of Bitcoin and altcoins wiped out almost $100 billion from the market capitalization in less than two weeks. Thus, it might be better to avoid Bitcoin in 2021 and not join the party.

Highly volatile market

The cryptocurrency market is well known for its high volatility. As compared with traditional markets, there are fewer players and less liquidity. Volatile moments are frequent, as Bitcoin’s value can move up or down in a short space of time.

Utilization also adds to the volatility. If fewer people use Bitcoin, it will hurt or impact the price. Remember that the value hinges on the number of traders or businesses willing to transact and accept Bitcoin.

Security risks

Digital currency is prone to theft by hackers. If a hacker successfully steals your Bitcoin, it’s impossible to get your coins back. Your digital wallet will also be compromised if you send Bitcoin to the wrong person. In both cases, your Bitcoin network or service provider will not reimburse your investment.

Needs wider adoption

What is lacking in Bitcoin is mainstream acceptance and wider adoption. If more institutional giants adopt the digital currency, it will raise investors’ confidence and give the cryptocurrency market a big lift. JPMorgan Chase, Square, and People’s Bank of China are the top names that entered the crypto universe. PayPal might also adopt Bitcoin soon.

Crypto stock on the rise

With Bitcoin gaining traction and setting new price records, crypto stocks are advancing. On the stock market, HIVE Blockchain Technologies (TSXV:HIVE) and Hut 8 Mining ended 2020 on a high note. The former rewarded investors with a 2,416% gain, while the latter’s total return for the year was 226%.

HIVE owns the distinction of being the first publicly listed blockchain infrastructure company. It’s based in Vancouver and has a market capitalization of $826.15 million. The company operates data centres that build blocks of blockchain infrastructure.

Since Bitcoin is a digital currency, it uses blockchain technology. Blockchain also powers other digital currencies, and its uses are not limited to financial services. HIVE aims to bridge blockchain and cryptocurrencies to traditional capital markets. This crypto stock is for investors that want a pure-play blockchain investment.

HIVE’s home base is in Canada, although it operates in Iceland and Sweden, too. In Quebec, the energy capacity of the mining operations is 30 MW. The combined energy capacity of the blockchain infrastructure facilities in the two countries is 21 MW.

Risky investments

Bitcoin needs a broader adoption by institutional investors. HIVE can capitalize on its first-mover advantage and become the crypto mining leader. But whether it’s Bitcoin (the digital currency) or HIVE (the crypto miner), you must be willing to take risks.

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. Tom Gardner owns shares of Square. The Motley Fool owns shares of and recommends PayPal Holdings and Square and recommends the following options: long January 2022 $75 calls on PayPal Holdings.

More on Tech Stocks

TFSA and coins
Tech Stocks

3 TSX Stocks to Add to Your TFSA Today and Hold for the Next Decade

Do you have contribution room in your TFSA? Consider buying these high-growth stocks now.

Read more »

cryptocurrency, crypto, blockchain
Tech Stocks

Sinking Crypto Stock: Is Hut 8 (TSX:HUT) Worth Buying at $2.30?

A prominent crypto stock trading at an absurdly cheap price, but you must have a high-risk appetite to consider buying…

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

Nasdaq Bear Market: Is Amazon Stock a Buy in Q4 2022?

Amazon stock is down 40% from record highs. But the trillion-dollar tech giant remains a compelling bet for long-term investors.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

2 Tech Stocks That Could Rise Faster With Easing Inflation

Two TSX tech stocks survived the market rout last week and could rise faster than their sector peers, as inflation…

Read more »

Maxar Technologies
Tech Stocks

2 Incredible Deals for Your TFSA Today

Investing in MDA Ltd. (TSX:MDA) could increase capital gains in a TFSA account, and here's one REIT to boost tax-free…

Read more »

Online shopping
Tech Stocks

Rebound Rockets: 2 TSX Tech Stocks to Buy Before They Soar

Beaten-down TSX stocks such as Lightspeed and Shopify should be on the top of your shopping list given they remain…

Read more »

stock research, analyze data
Tech Stocks

3 No-Brainer U.S. Stocks for Canadian Investors

Tech stocks may not seem like the best option right now, but these U.S. stocks are simply no-brainers in this…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

3 TSX Tech Stocks That Could Soar

The tech sector is still heavily discounted, though the scale of discount and recovery potential may vary significantly from stock…

Read more »