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Bitcoin
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== Risks == As with any investment, investing in Bitcoin carries a level of risk. Overall, based on the Bitcoin's adjusted beta (i.e. 1.42), the degree of risk associated with an investment in Bitcoin is 'medium'. Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. The key risks can be found below. For us, currently, the biggest risk to the valuation of the currency relates to the strong competition from other cryptocurrencies and traditional financial systems (i.e. competition risk). # '''Volatility:''' Bitcoin is known for its high price volatility. Its value can fluctuate dramatically over short periods, influenced by factors like regulatory news, technological developments, market sentiment, and macroeconomic trends. # '''Regulatory Risks:''' The regulatory environment for cryptocurrencies is still evolving. Changes in regulations, both in the U.S. and internationally, can impact Bitcoin's adoption, usage, and value. # '''Security Risks:''' While the blockchain technology underlying Bitcoin is secure, exchanges and wallets can be vulnerable to hacking and other security breaches. # '''Market Adoption and Competition:''' Bitcoin's long-term success depends on its widespread adoption. This is uncertain and can be affected by several factors, including competition from other cryptocurrencies and traditional financial systems. # '''Technological Risks:''' Issues like scalability, transaction speed, and energy consumption are technological challenges that Bitcoin faces. How these challenges are addressed can affect its future utility and value. # '''Limited Historical Data:''' Compared to traditional assets, Bitcoin has a limited track record, which can make it difficult to predict future performance based on past trends. # '''No Intrinsic Value:''' Unlike stocks or bonds, Bitcoin does not represent a share in a company or a claim on assets, and it does not generate income. Its value is largely driven by supply and demand, making it more speculative. # '''Legal and Tax Implications:''' Depending on the jurisdiction, there can be legal and tax implications associated with trading and investing in Bitcoin, which can affect returns and complicate compliance.
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