Trading Nation

Why bitcoin could be a major market risk next year, explained

Investors should be aware of extreme volatility in the crypto-market: Trader

Bitcoin has soared quadruple digits this year, and one market watcher sees the cryptocurrency posing a potential risk to investors next year given its extreme volatility and lack of regulation.

Intense fervor around bitcoin has pushed bitcoin up more than 1,500 percent in 2017 on one exchange. Michael Bapis with the Bapis Group at HighTower sees risks afoot, though he sees the price rising higher still. Here are his reasons.

• The force is with bitcoin for the moment, but its momentum may be short-lived. Governments are already beginning to investigate regulation for the cryptocurrency universe, which would pose a risk to those who hold it.

• Questions around bitcoin's transparency persist, and too many variables exist in the space.

• The price is incredibly volatile and sees major price swings that traditional asset classes such as stocks and bonds typically do not. The volatility can be driven by investors' unawareness as to what the asset really is, or what the underlying supply and demand is like. The price could climb still in 2018, of course.

• Deutsche Bank earlier this month listed a "bitcoin crash" on a list of significant market risks next year. Those looking to get in and buy should anticipate high levels of volatility and mounting unknowns.

Bottom line: Bitcoin has seen unprecedented momentum this year, but it may be short-lived and pose a broader risk next year.