Bitcoin prices have experienced peaks and valleys, why do people still invest in it?

Abstract: Bitcoin has experienced peaks, troughs and hacker attacks this year, but investment enthusiasm seems to remain high. Of course, many people remain cautious about it.

It’s been an unusually busy year for Bitcoin, with headline-grabbing price spikes and hacker attacks causing investors’ enthusiasm for cryptocurrencies to cool , but industry insiders believe Bitcoin remains a viable investment.

In August last year, bitcoin was trading around $230. A year later, the price more than doubled to $580. At the same time, it once soared to $760 before falling back. Such fluctuations will undoubtedly shake the attitude of some investors.

The price of Bitcoin (BTC) experienced another shock earlier this year in August when the Bitfinex exchange was hacked, resulting in the theft of around $70 million worth of Bitcoin. The cyber theft resulted in a loss of 36% of the Bitcoin balance in all customer accounts.

But despite concerns about volatility and security, many in the industry still see Bitcoin as a positive investment prospect.

Anatoliy Knyazev, co-founder of investment firm Exante, said:

“We always advise investors to consider the fundamentals and put aside sudden shocks, such as the Bitfinex hack and MtGox (which also experienced a hack in 2014), and the reason for buying Bitcoin has always been the same, that is, high yield.”

However, Knyazev acknowledged that some investors are concerned about the safety of their funds. He added:

“If the hack has made you wonder how safe your investments are, you might want to consider checking with your manager whether your account has national security insurance, which Exante covers for all deposits over €20,000 ($22,600).”

Charles Hayter, founder and CEO of digital currency website CryptoCompare, said that there are still many people who believe in this and help the development of digital currencies such as Bitcoin.

“In this sense, currency and Bitcoin are about trust, that mistakes cannot be allowed to happen, no matter how many hacks or scandals there are,” he said in an email to CNBC.

“Cryptocurrency has two key things to do: reduce transaction fees and open up new business areas through micro-transactions and synergies with the Internet of Things. Crypto and blockchain will do for the financial industry what the steam engine did for the industrial revolution. The question is not if you will use cryptocurrency in the future, but when and how.”

Is Bitcoin a safe haven asset?

In June, blockchain analyst and ARK Invest portfolio manager Chris Burniske told CNBC that he believes Bitcoin is a safe-haven asset, a view he maintains despite volatility and the risk of cyber theft.

He said: " The reason why Bitcoin is a safe haven asset is that it is very different from other assets. Bitcoin will not accommodate them."

“Bitcoin offers a good portfolio option for a small group of people to invest their money in something that is completely uncorrelated with other capital markets.”

According to Burniske’s analysis, part of Bitcoin’s problem is hacks, such as the one experienced by Bitfinex, where nearly 120,000 Bitcoins worth about $70 million were stolen, and security breaches that have drastically reduced Bitcoin’s image.

He said: "So far, Bitcoin is a safe haven asset if it is stored and secured correctly. There is still a lot of room for interest, and the Bitcoin market has not been very active since the Bitfinex hack."

“Bitfinex’s security protocols were not enough to deter hackers, but Bitcoin and the Bitcoin-blockchain are still working hard to be secure.”

Burniske advises that investors should research service providers before considering investing in bitcoin to determine how they want to ensure the security of their bitcoins.

“If users want 100% control over their bitcoin, there are hardware package providers like Ledger, KeepKey and TREZOR,” he said. “What these companies do is provide investors with a physical piece of hardware to transfer bitcoin. It usually uses two-factor authentication and a multi-frequency setup. It’s very secure and you have 100% control over your investment.”

He also suggested that GDAX and Bitstamp are reputable exchanges because they store most of their customers' bitcoins in warehouses that are not connected to the internet and cannot be stolen by anyone. They also have insurance, so they are fully capable of returning customer funds even if they are hacked.

ARK Invest, which does not trade on GDAX or Bitstamp, stores most of its cryptocurrencies on Coinbase, Burniske added.

What are the risks?

There are other issues to consider before investing in Bitcoin. Bram de Hass, investment managing partner at Schildpad & De Haas, said the two biggest reasons he doesn't invest in Bitcoin are competition from other cryptocurrencies like Ethereum and tax issues.

“There were many other interesting second-generation cryptocurrencies before Bitcoin, and I would certainly consider many attractive and strong contenders with differentiated features.”

At the same time, he added: "Another major issue that keeps me from investing in Bitcoin is not knowing how you will be taxed when you buy, sell or hold these currencies. And it is difficult to conduct voice transactions because the rules are unclear."

Despite all the concerns, Bitcoin and cryptocurrencies remain an exciting space.

"Like any new industry, cryptocurrency is an early stage, and there are still many failures and bad experiences," Hayter said. "But only through this stage of experimentation and revolution can we learn and move forward. It is also important to introduce appropriate regulatory rules to protect consumers, but moving too quickly may stifle investment opportunities in this field."