Is Bitcoin a good investment?
Bitcoin is generally seen as the first mainstream digital currency. First commercially used in 2010Bitcoin is now the most famous and most accepted digital currency on the planet. It is accepted by more companies and individuals than any similar alternative. Several countries have even made Bitcoin their national currency!
Like any traditional currency or stock, anyone can invest in Bitcoin by buying some and seeing how it reacts in the market. Unlike traditional currencies and stocks, however, Bitcoin’s value changes more rapidly and more severely. That makes Bitcoin one of the most exciting – and unpredictable – investments available.
While Bitcoin may be appealing, investors should exercise caution and educate themselves before investing. Here’s what you can expect.
Is Bitcoin a good investment?
- Bitcoin is growing in popularity as a financial asset and investment opportunity.
- Unlike more traditional investments, Bitcoin can change value quickly due to changing supply and demand, varying national regulations and so-called “whale” investors who can influence the space.
- You can buy Bitcoin via online exchanges.
- Be sure to consult with a financial advisor before making any investments.
How Much Can Bitcoin Change in Value?
Bitcoin, like anything that trades in a market, will experience significant changes in value. Over the years, the value of Bitcoin has changed, sometimes dramatically: in 2019, each Bitcoin was worth around $5,000; by the end of 2019, this price had changed to $60,000; and through much of 2022 it has hovered around $20,000.
Bitcoin is highly volatileas the currency is available for international trade 24 hours a day. Estimates suggest that Bitcoin may see value changes of 2 to 3 percent daily. In comparison, most currencies and precious metals only see average changes of less than half a percentage point daily.
This enormous volatility makes Bitcoin more risky than many other investments. However, that volatility has an upside: The currency can also rise dramatically in value.
Why is Bitcoin so volatile?
Understanding the volatility of Bitcoin is essential to help investors make wise decisions with their money. Here are the main reasons:
- Supply and demand. As with any investment, these two fundamental concepts affect Bitcoin’s value. Prices will be higher if there are fewer digital coins available for trading. Bitcoin is limited to only 21 million tokens, so the cost can increase when the available supply stops growing. Prices are also rising as Bitcoin’s popularity fuels demand for the digital coin.
- State and national regulations. In general, the fewer regulations, the easier it is for people to adopt and use an investment. If people are banned from using Bitcoin, the currency cannot thrive and demand is forced down. This could affect Bitcoin’s overall market value.
- Whales. Individuals or companies that hold large amounts of digital currency are known as “whales”. When whales buy or sell large stakes in Bitcoin, the market reacts in disproportionate ways. A massive selloff of Bitcoin by one or more whales could signal that Bitcoin may have peaked in value. This can set off a chain reaction where others follow suit, which can quickly devalue the currency.
The trading volume for Bitcoin varies every day. But that volume can become significant when new developments occur. The Bitcoin community is one close-knit group of investors and supporters with worldwide members constantly searching for the latest developments. They want to see how the currency changes and what they can expect from their investments. Therefore, people will often look to see what the community is thinking when determining whether the currency may change.
How do I get Bitcoin?
One reason why Bitcoin is a popular investment is because how easy it is for people to acquire it. Exchanges like Coinbase, Coins-e.com and Cryptsy help people buy Bitcoin online. These exchanges include rates between Bitcoin and traditional currencies, also called fiat currencies, to help investors understand the cost of their potential investments. Exchanges also allow investors to trade cryptocurrencies and fiat currencies on their platforms.
Investors need too cryptocurrency wallets. Crypto wallets store critical data about investors’ currencies. This includes the public and private keys necessary for financial transactions to occur securely, privately and responsibly. Wallet keys are essential for encrypting and decrypting data, a function that prevents unauthorized parties from gaining access to other people’s currencies.
As Bitcoin has become more and more mainstream, so has your access to Bitcoin. Bitcoin ATMs becoming more common. These machines allow people to buy Bitcoin, exchange crypto assets and withdraw Bitcoin as fiat currency.
Another important reason why Bitcoin is so popular is that it pioneered the ability for investors to buy fractional coins. Bitcoin tokens are divisible by eight decimal places. This means that those with limited funds can still become users and investors.
Bitcoin as a financial asset
Bitcoin is relatively new to the market compared to more traditional investments such as stocks and bonds. That makes it unique and somewhat attractive to informal investors. This uniqueness has also led to a question whose answer may involve government oversight: Is Bitcoins and other cryptocurrencies securities or a commodity?
Some consider cryptocurrencies like Bitcoin to be commodities because – like traditional currencies – anyone can use them to buy goods and services; others consider some cryptocurrencies to be securities because the digital coins being purchased are investments in the companies that issue them.
One thing is certain: Bitcoin’s unique and unpredictable nature makes it appealing to many investors and portfolios.
Investment in Bitcoin
Bitcoin, like any other investment, comes with risks. The volatility of the price and the unpredictability of the value are significant concerns. But security is also an issue; like all technologies, malicious hackers can and do find ways to exploit digital currencies and the platforms they operate on. Hundreds of millions of dollars in cryptocurrency are stolen every year.
Bitcoin can make for an appealing investment when you consider all factors. It can even work together with other individual investments such as stocks or bonds to better diversify investors’ portfolios. As always, it is important for investors to educate themselves and work with financial planners and fiduciaries who have significant experience in this area.
