Should Your Business Invest In Bitcoin?

Investing in Bitcoin is a hot topic, with many companies already taking the plunge. The world's largest business intelligence company, MicroStrategy, has bought 21,454 Bitcoins worth approximately $250 million, and Tesla has invested $1.5 billion in the cryptocurrency. With such big players getting involved, it's no surprise that many businesses are now wondering if they should follow suit.

There are several reasons why companies may want to invest in Bitcoin. Firstly, it emerged from a crisis, and in times of economic uncertainty, it can provide a hedge against inflation. Secondly, it has become institutional and regulated, making it more accessible and secure for businesses to invest. Finally, it is still relatively cheap to buy Bitcoin compared to other assets like fiat and gold.

However, investing in Bitcoin is not without its risks. It is a highly volatile and speculative asset, and new investors should be prepared for the possibility of losing most of their money. It's important to do your research and consult with financial experts before making any decisions.

Bitcoin's volatility

Bitcoin is considered a volatile asset, but this volatility is decreasing and is expected to continue to do so. Bitcoin's volatility is measured by how much its price fluctuates relative to its average price over a given period. The more volatile an asset, the more people will want to limit their exposure to it, either by not holding it or by hedging.

Volatility is a measure of risk, and in traditional finance, it is synonymous with "risk". However, it is important to note that volatility can be "good" or "bad", measuring positive or negative returns, respectively. Bitcoin has historically exhibited high volatility, but when examining its returns, many are disproportionately skewed to the positive side. This is evident in Bitcoin's Sharpe ratio of 0.96 from 2020 to early 2024, indicating that investors have been more than compensated for taking on the risk.

Furthermore, Bitcoin's volatility is still lower than that of gold and other currencies. While gold's volatility averages around 1.2%, other major currencies average between 0.5% and 1.0%.

The high volatility of Bitcoin can be an opportunity for investors, as it has historically been followed by steep rises in price. Low volatility environments can become the foundation for future upward moves in price. There have been several instances where Bitcoin's realized volatility hit new all-time lows, and these were followed by significant price increases.

In summary, while Bitcoin is a volatile asset, its volatility is decreasing and compares favourably to other asset classes. Its volatility provides opportunities for investors, and its historical returns have compensated for the risk. As Bitcoin matures, its volatility is expected to continue declining, making it a more stable investment option.

Crypto exchanges

There are many types of cryptocurrency exchanges. Some allow users to remain anonymous and are decentralized, not requiring users to enter personal information. For certain demographics, including refugees or those living in countries with little to no infrastructure for government credit or banking, anonymous exchanges can help bring them into the mainstream economy.

Popular exchanges in the U.S. are not decentralized and follow laws that require users to submit identifying documentation. These include Coinbase, Kraken, Gemini, and Binance, which offer Bitcoin and a growing number of altcoins.

When creating a cryptocurrency exchange account, it is recommended to use two-factor authentication and a long, unique password that includes a variety of letters, special characters, and numbers.

• Coinbase: The largest crypto exchange on the market, Coinbase is one of the best for new investors. It offers a wide range of crypto offerings, fair fees, and easy signup access.
• Gemini: Gemini has a host of features for crypto investing, such as the Active Trader Platform, a mobile app, and the Gemini Wallet. They also offer institutional accounts with double the transfer limits of personal accounts.
• Kraken: Kraken is a relatively new entrant but offers plenty of business-friendly offerings. Corporate clients get access to both the Kraken Trade Desk and Kraken Account Management, providing assistance for large trades and 24/7 customer support.
• ICONOMI: A unique crypto site that allows businesses to enter the crypto market at their own pace.
• Wirex: An excellent option for a business crypto account as it allows the use of its next-gen card to buy with crypto at over 50 million partners worldwide.
• Paybis: Paybis allows businesses to invest in crypto for far less money, and the secure mobile wallet helps keep crypto assets separate from other cash holdings.
• Robinhood: For business owners who want to hold stocks and cryptocurrencies in the same account, Robinhood offers a simple platform to buy and hold Bitcoin or Ethereum.

It is important to note that businesses will likely need extra documentation to open a crypto exchange account, such as registration and tax documents, disclosures of majority owners, and the use of a business bank account for deposits.

Payment methods

There are several payment methods that businesses can use to invest in Bitcoin. Here are some popular options:

• Online Payment Processors: Small businesses can use online payment processors to accept Bitcoin and other cryptocurrency payments. Companies such as BitPay and CoinBase offer tools and integrations to make it simple for businesses to accept crypto payments. These processors typically charge a low transaction fee of around 1% or less, which is often lower than credit card fees. They provide features like hosted checkout, payment buttons, invoicing, and integrations with popular e-commerce platforms.
• Crypto Apps: Crypto apps like BitPay allow users to buy, store, swap, and spend cryptocurrencies all in one place. These apps offer convenience and security, enabling businesses to manage their crypto transactions efficiently.
• PayPal: PayPal, one of the largest online payment companies, now allows consumers to pay merchants within its network using cryptocurrencies. This option simplifies the process of accepting crypto payments, as merchants won't directly receive crypto but can still cater to customers who want to pay with Bitcoin or other digital currencies.
• Crypto Exchanges: Businesses can use cryptocurrency exchanges, such as CoinBase, to buy and sell large volumes of Bitcoin. These platforms provide liquidity and often offer additional services to institutional investors.
• Direct Payments: Businesses can also choose to accept direct Bitcoin payments from customers. This method may require more technical expertise to set up but gives businesses greater control over the payment process.

When considering payment methods, businesses should evaluate factors such as security, transaction fees, ease of use, and integration with their existing systems. Additionally, it is essential to stay updated with the evolving regulatory landscape surrounding cryptocurrencies to ensure compliance with local laws and regulations.

Bitcoin's finite supply

Bitcoin has a finite supply, with a maximum of 21 million bitcoins that can ever be in circulation. This is because Bitcoin inventor Satoshi Nakamoto designed the cryptocurrency with a cap to limit the supply, increasing its scarcity over time, which tends to increase demand and price.

The total number of bitcoins issued is not expected to reach 21 million due to the use of rounding operators in the Bitcoin codebase. This systematic rounding down of Bitcoin block rewards in fractions of satoshis (the smallest unit of measurement in the Bitcoin network) is why the total number of bitcoins issued is likely to fall slightly short of 21 million.

Bitcoin wallets

Hot wallets are connected to the internet and are often free to use. They offer add-on services such as trading or staking in exchange for fees. While hot wallets make it relatively easy to carry out transactions, they may be more vulnerable to hackers. Examples of hot wallets include Crypto.com DeFi Wallet, Zengo Wallet, and Coinbase Wallet.

On the other hand, cold wallets are disconnected from the internet and tend to be more secure. However, they usually come at a cost as you need to purchase a piece of hardware specifically designed to store your crypto. Losing the device could make recovery difficult. Examples of cold wallets include Ledger and Trezor.

When choosing a Bitcoin wallet, consider factors such as security, ease of use, supported digital assets, and integration with other platforms. Additionally, some businesses may opt for multiple types of wallets, with some for long-term storage and others for active trading.

Frequently asked questions