The Future Of Bitcoin: Should You Invest?

Bitcoin is a well-known cryptocurrency that offers an alternative form of money. Cryptocurrencies such as Bitcoin offer a new method of tracking and verifying asset ownership. In addition to functioning as a mode of payment, many people buy and hold Bitcoin as an investment. The easiest way for most people to buy Bitcoin is through a brokerage account or cryptocurrency exchange account. However, investing in Bitcoin is extremely risky. The price is highly volatile and susceptible to government actions. If you're thinking about investing in Bitcoin, it's important to do your research and understand the risks involved.

How to buy bitcoin

If you want to buy Bitcoin, you have several options to purchase the world's biggest and most popular cryptocurrency. Here is a detailed look at the steps you can take to buy Bitcoin.

Choose a Bitcoin Exchange or Brokerage

Start by choosing the best place to buy and store your digital currency. Popular places to buy Bitcoin include Coinbase, Robinhood, eToro, FTX, Gemini, and BlockFi, among many others. Take note of fees and the reputation of the exchange when deciding where to buy Bitcoin. Also, if you plan to transfer your Bitcoin out of the brokerage account, make sure that feature is supported, as not all brokerages give you that option.

Open an Account with Bitcoin Support

Once you have picked your ideal account, it's time to open your brokerage or cryptocurrency account. If you are in the United States, you will need to share your basic contact information and provide valid identification to meet the exchange's know-your-customer (KYC) requirements.

Fund Your Account

Once your account is open, it's time to add funds. The fastest and cheapest way is typically with an online funds transfer from a connected bank account. Depending on the exchange, you may also be able to use payment apps like PayPal. Some cryptocurrency exchanges give you instant access to trade, while others may require you to wait for funds to clear before buying.

Enter a Purchase Order

When you are ready, click the buy button to enter an order. The exchange will turn your dollars into Bitcoin, stored in the same cryptocurrency account, similar to holding stocks in a brokerage account. Once your trade executes, you officially own Bitcoin.

Safe Storage

Bitcoin and cryptocurrency wallets are a place to store digital assets more securely. Keeping crypto outside the exchange and in a personal wallet ensures that investors have control over the private key to the funds. An exchange wallet is offered but not recommended for large or long-term cryptocurrency holdings.

A cold wallet, which is not connected to the internet, is considered the safest and most secure place to keep your Bitcoin. Offline storage with a hardware wallet, known as cold storage, can protect your Bitcoin from hackers.

Bitcoin's value and volatility

Bitcoins Value and Volatility

Bitcoin is a well-known cryptocurrency that offers tech enthusiasts an alternative form of money. It is a peer-to-peer cash system designed to function as a currency. However, its extreme volatility poses a challenge to its effectiveness as a medium of exchange. Bitcoin's price is heavily influenced by supply and demand, investor actions, media hype, and government regulations.

Volatility

Bitcoin's price volatility is almost ten times higher than that of major exchange rates, such as the US dollar against the euro and the yen. This high volatility is a significant obstacle to Bitcoin's ability to function as a reliable and efficient medium of exchange. The volatility is driven by various factors, including investor actions, media influence, government regulations, and its limited supply.

Investor Actions

As Bitcoin's supply becomes more limited, its demand increases, with long-term, wealthier investors holding onto their Bitcoins. This prevents those with fewer assets from gaining exposure. According to the National Bureau of Economic Research, one-third of all Bitcoins were held by the top 10,000 investors at the end of 2020.

Media Influence

Media outlets, influencers, and industry moguls can create investor concerns or hype, leading to price fluctuations. For example, when media outlets announced Proshare's introduction of its Bitcoin Strategy ETF in October 2021, Bitcoin's price skyrocketed to almost $69,000. However, when investors realized the ETF was linked to Bitcoin through futures contracts, prices dropped back down to around $50,000.

Government Regulations

Government actions and views on cryptocurrency can also impact Bitcoin's price. For instance, China's government and central bank announced in 2021 that all cryptocurrency transactions were illegal, causing a drop in Bitcoin's price.

Limited Supply

Bitcoin's design limits the total number of coins to 21 million. As the circulating supply gets closer to this limit, prices are expected to climb higher due to increasing competition among big financial players.

Value

Bitcoin's value has seen tremendous growth since its inception in 2009. In 2021, its value skyrocketed to almost $70,000, though it has fluctuated since then. Its value is heavily influenced by supply and demand, and it has been on a wild ride over the past few years.

Risks

While Bitcoin offers an alternative currency and investment strategy, it is also highly risky and volatile. Its value can fluctuate significantly, and there is a potential for hacks and other losses. As a relatively new asset, there is also the risk of government actions, such as the recent ban in China, that could severely impact its value.

In conclusion, Bitcoin's value and volatility are closely linked, with its limited supply and high demand driving up prices, while various factors contribute to its volatile nature.

Risks of investing in bitcoin

Bitcoin is a digital currency that is issued and transmitted through an open-source, digital protocol platform known as the "Bitcoin Network". It is an online, peer-to-peer user network that uses a digital transaction ledger called the "Blockchain". Each transaction is recorded, timestamped, and publicly displayed in a "block" in the publicly available Blockchain, creating a verifiable transaction history of all existing bitcoins.

While Bitcoin has seen a surge in popularity, there are some serious risks to investing in this cryptocurrency. Here are some of the key risks to consider:

Volatile and Fluctuating Market

The price of Bitcoin is highly volatile and constantly changing, making it difficult for investors to build confidence and secure gains. The unregulated and anonymous nature of the digital asset market, combined with the susceptibility of cryptocurrencies to sentiment, emotion, and publicity, contributes to price volatility. Crypto exchanges, media owners, and influential investors can also manipulate prices through strategies like wash trading, dark pool trading, pump and dumps, and shilling. The unpredictable nature of the market makes it challenging to determine if you will get a return on your investment.

Cyber-Security Risks and Fraud

Bitcoin is technology-based, which makes this investment vulnerable to cyberattacks and hacking. There have been significant incidents of theft on personal wallets and exchanges, and if bitcoins are lost or stolen, there is no way to retrieve them. Additionally, the lack of security in the Bitcoin market creates a significant risk for investors, as fraudulent exchanges can dupe unsuspecting investors out of their bitcoins.

Little or No Regulation

The Bitcoin market currently operates with little to no major regulations, as it is a new concept for governments and financial institutions. The lack of taxation and clear regulatory frameworks creates uncertainty for investors, especially regarding tax obligations and record-keeping. The inconsistent treatment of Bitcoin as an asset or currency across different jurisdictions further adds to the regulatory complexity.

Technology Reliance

Bitcoin is entirely reliant on technology, with coins being digitally mined, exchanged via smart wallets, and verified through various systems. Without the underlying technology, Bitcoin has no intrinsic value, and investors are more vulnerable to cyber threats and online fraud. Additionally, the digital nature of Bitcoin means that there is no physical collateral, such as gold or real estate, to fall back on if the technology fails.

Loss of Confidence in Digital Currencies

Bitcoin and other cryptocurrencies are part of a rapidly evolving digital assets industry, which is subject to a high degree of uncertainty. The value of Bitcoin is determined solely by market participants' transactions, meaning that a loss of confidence could lead to a collapse in trading activities and an abrupt drop in value. The risk of Bitcoin being used for criminal activities or by terrorist organizations further adds to the potential for regulatory restrictions or negative market sentiment.

Storing and securing bitcoin

Bitcoin is a digital asset, and as such, it can be challenging to store it safely. There are several ways to store bitcoin, and it is important to understand the risks associated with each method to prevent loss or theft. Here are some detailed guidelines on storing and securing your bitcoin:

• Use a combination of hot and cold wallets: The Bitcoin organisation recommends using two separate wallets for storing your bitcoin. A hot wallet, typically stored on a mobile device, is used for everyday spending and walking-around money. In contrast, a cold wallet is kept offline and holds the majority of your bitcoin, which you use to refill your hot wallet. Keeping the majority of your funds in a cold wallet reduces the risk of theft or loss.
• Choose the right type of wallet: There are four main types of bitcoin wallets: mobile, desktop, web, and hardware. Mobile and web wallets are convenient and accessible but are more vulnerable to hacking. Desktop and hardware wallets are less convenient but offer higher security as they are not connected to the internet.
• Backup your wallet regularly: Create multiple backups of your wallet and store them in different secure locations. This will protect you against computer failures, human errors, and theft. Ensure that your backups include all private keys, especially those for hidden addresses.
• Encrypt your backups: Any backup stored online or on a device connected to the internet is vulnerable to theft. Use encryption to protect your backups from malicious software and hackers.
• Use strong passwords: Use long, complex passwords with letters, numbers, and punctuation marks for your wallets and backup files. Avoid using recognisable words or easily guessable passwords. Consider using a password manager to generate strong passwords.
• Never forget your password: Unlike banks, bitcoin has limited password recovery options. Memorise your password or keep a paper copy in a secure location, such as a vault or safe.
• Keep your software up to date: Regularly update your bitcoin software and other applications on your devices. Updates often include security fixes that can help protect your bitcoin from known vulnerabilities.
• Enable two-factor authentication (2FA): Use 2FA whenever possible to add an extra layer of security to your wallets and backup files. Avoid using your phone number for 2FA, as it can be vulnerable to hijacking. Instead, use a separate SIM card dedicated to this purpose.
• Use an offline transaction signing process: For added security, use two computers, one connected to the internet and one offline. Create transactions on the online computer, sign them offline, and then send them using the online computer. This way, even if the online computer is compromised, your funds cannot be withdrawn.
• Be cautious with online services: Be wary of online exchanges and wallets that store your money. Many of these services have had security breaches, and they may not provide sufficient insurance or security. If you use these services, choose them carefully and consider using two-factor authentication.
• Only keep small amounts in digital wallets: Treat your bitcoin wallet like a physical wallet. You wouldn't carry a large amount of cash around, so don't keep a large amount of bitcoin in a digital wallet. Keep only what you need for everyday use, and store the rest in a more secure location.
• Use antivirus software: Install antivirus software on any device that contains bitcoin to detect and remove malware that could steal your cryptocurrency.
• Create a recovery contact: Share the location of your wallets and passwords with a trusted person. In the event of your death or incapacitation, they will be able to recover your funds.
• Use a separate email address: Use a dedicated email address for your bitcoin account and communications that is not associated with your social media profiles or other online accounts. This helps protect your privacy and reduces the risk of identity theft.
• Avoid oversharing on social media: Be cautious about what personal information you share on social media. Avoid posting your email address, phone number, or home address publicly. Keep your social media profiles private to reduce the risk of becoming a target for bitcoin theft.
• Use a secure network connection: When accessing your bitcoin online, use a private network or a VPN to encrypt your web activity and protect your IP address from potential hackers.

Selling bitcoin

There are several ways to sell Bitcoin, and the right method for you will depend on your priorities, such as convenience, control over funds, transaction fees, and anonymity.

One of the quickest and most convenient ways to sell Bitcoin is by using a cryptocurrency or Bitcoin wallet app, such as the Bitcoin.com Wallet app. To do this, you will need to download the app, import your Bitcoin, and connect your bank account. Then, you can tap the sell button and follow the instructions.

Another option is to use a brokerage platform such as eToro, which also allows you to buy Bitcoin. This method may require creating an account and connecting your bank account.

If you prefer more direct peer-to-peer transactions, you can use a Bitcoin ATM or opt for peer-to-peer trading. However, keep in mind that Bitcoin ATMs typically charge higher fees, ranging from 5% to 10% per transaction.

When selling Bitcoin, it's important to consider the transaction fees involved, which can vary depending on the platform or method used. Additionally, some platforms may have minimum purchase or sale requirements, so be sure to review the terms and conditions before proceeding.

Finally, remember that selling cryptocurrency allows you to take profits, manage risk, diversify your portfolio, and adapt to unforeseen circumstances with high liquidity. By converting your Bitcoin into fiat currency, you maintain control over your investments and ensure financial flexibility in a dynamic market.

Frequently asked questions