Investing has grown more relevant in the past few years. With the very bullish market, people are trying to find a place to put their money and earn without doing extra.
And one of the most popular options for traders and investors out there is cryptocurrencies. The most popular cryptocurrency is Bitcoin.
What Is Bitcoin and What Can You Do With It?
Even if you’re not a tech-savvy person, you might‘ve heard of the term “Bitcoin” before. There are a lot of successful investors who cashed in by being an early adopter of this technology. But what is Bitcoin, and why is it a very popular yet controversial investment option?
The Origin of Bitcoin
Bitcoin is a kind of digital currency created by the mysterious pseudonym, Satoshi Nakamoto. It was released in 2009 as open-source software.
This decentralized digital currency aims to facilitate transactions from one person to another without any single administrator (like banks or other financial establishments.) Hence, it is considered the first-ever cryptocurrency.
How Does Bitcoin Work?
One of Bitcoin and other cryptocurrencies’ strengths is its usage of a public distributed ledger or a Blockchain. People can transact with other users by using the Bitcoin stored in their digital wallet (usually a smartphone or computer.)
Each transaction is recorded in the blockchain, so no one can cheat the number of their coins, or use the coins from other people.
It needs a lot of computing power to run the Blockchain. Hence, people who participate in powering up this ledger are rewarded with parts of Bitcoin.
This is the process of “mining” Bitcoin. Otherwise, you would need to purchase your own coins to be able to exchange with other people.
What Do You Mean By “Investing” in Bitcoin?
Investing in Bitcoin can be a bit daunting, especially if you’re new to investing in general. However, Bitcoin investments tend to be easier and simpler than it seems.
Just like stocks, the price of Bitcoin can increase or decrease over a period. To make a profit in investing, you need to buy coins at a low price and sell it when the price is high.
There are several cryptocurrency exchanges like Binance and Coinbase Pro where you can buy and sell Bitcoins for investment. Alternatively, some investors use Bitcoin investment as a replacement for inflation hedging commodities like gold.
Is Bitcoin Still A Good Investment?
Mining Bitcoin is at the end game now, and there is no doubt about it. You can only profit from mining if you have the right equipment and courage to pay other expenses (electricity, internet connection, and more.) But what about investing in Bitcoin? Is it still a viable option?
There are both pros and cons to Bitcoin, just like other kinds of investments. Whether Bitcoin is a good investment or not depends on your financial capabilities, experience, and risk appetite.
For once, beginners in trading are recommended to skip crypto-trading until you get the fundamentals.
Additionally, it’s really up to you if you want to take the chance. Here are some questions to ask if you do go that route.
- Do the pros outweighs the cons for this venture?
- Can you find a better investment elsewhere?
- Will cryptocurrencies like Bitcoin stick around and eventually get adopted by financial institutions and governments?
- Are you confident enough to seek greener pastures instead of using traditional investment vehicles?
Everyone has a different risk appetite for Bitcoin trading. There is no assurance that cryptocurrency would still be a success in the future, or if it will stay secure. It is listed as one of the investments with high risks. If the pros far outweigh the cons, Bitcoin investing is worth considering.
Pros:
Banks are starting to warm up to bitcoins
Even traditional banks are warming up to Bitcoin by embracing the change. Even some of the biggest traditional banks out there like Goldman Sachs are planning to integrate cryptocurrency in their system.
When big banks start to adapt to blockchain technology, it creates a whole new layer of legitimacy for cryptocurrencies.
Investors see it as a complement to gold
Gold is one of the commodities perceived by a lot of investors as the final safety net asset. It is one of the most valuable materials on the Earth, and its scarcity makes it even more sought-out.
Because of that, gold is almost always not affected by the effects of inflation, unlike fiat money which can be reprinted.
Although Bitcoin isn’t as good an inflation hedge as gold, more and more investors are using it as such. The reason for it is that Bitcoin is also a limited commodity, miners will mine the last Bitcoin in about 2140.
Hence, although not as good as gold, Bitcoin can be used as an inflation hedge during a market collapse.
Increasing Bitcoin network
Another reason why people are starting to get into Bitcoin is that more and more people are using it. There are more wallets and platforms available worldwide, making exchanges easier to facilitate.
More establishments are also accepting Bitcoins as payment, which is good for the cryptocurrency industry, You can trade with more people and diversify your portfolio easier than ever.
Flexibility in using your funds
And lastly, Bitcoins are very liquid assets. You can exchange them into other types of currencies all over the world.
And this can be done without any transaction problem as long as the currency is supported in your platform. Additionally, some major establishments had started to accept Bitcoins as payments. There are even Bitcoin-based EFTs available for interested individuals.
Cons:
Bitcoin is volatile
Market reversal is a pretty common thing n investment. What goes up in price must eventually go down in the future. Unfortunately, the Bitcoin market is known for being volatile.
Bitcoin’s price was staggering during 2018 when it reached about $20,000 per coin. A year later, the price was hovering at only $4,000. As of this writing, one coin is worth over $62,600.
There is no calculatable rate of return
Unlike other investments, Bitcoin doesn’t really have a calculatable rate of return. Since the exchange happens without any regulation, it’s impossible to calculate possible volatility.
This is unlike stocks and mutual funds, which you can predict by analyzing the current market, a company’s performance, and other factors.
The Final Verdict
When it comes to Bitcoin, someone would either be a staunch advocate or an extreme unbeliever. It’s dangerous to dive right into it without knowing how it works.
But it’s more foolish to ignore its potential as an investment. The decision is ultimately up to the investor’s risk appetite and financial position.
Here’s a tip: only invest with an amount of money that you can afford to lose. Don’t put your whole life savings into this venture, as it’s not easy to know if you’ll end up a winner or not.
Avoid using funds that are set aside for another purpose, such as your retirement fund or your emergency fund.
Image by Jirattawut Domrong via Shutterstock.com.