Bitcoin Investment: Is It Too Late To Invest?

Bitcoin has soared to new highs in 2024, but is it a good time to invest?

Bitcoin is prone to price volatility, with wide swings to the upside and downside. The most recent upswing comes alongside growing institutional demand for the cryptocurrency as an attractive asset class. Bitcoin's value has rallied over the last few quarters, increasing from about $26,000 in mid-September 2023 to an all-time high of around $73,000 in mid-March 2024.

However, Bitcoin is a risky investment with high volatility and should generally be considered only if you have a high-risk tolerance, are in a strong financial position already, and can afford to lose some or all of your investment.

If you choose to invest, it’s important to maintain a diversified portfolio that includes several different types of investments to reduce your overall risk exposure. As a rule of thumb, don't invest more than 10% of your portfolio in risky assets like Bitcoin.

Bitcoin's volatility

Bitcoin is considered a volatile asset, and its volatility is measured by how much its price fluctuates relative to its average price over a period of time. The cryptocurrency industry thrives on speculation, with investors betting on Bitcoin's price going up or down to make a profit. This causes a sudden increase or decrease in Bitcoin's price, leading to volatility.

Volatility is a measure of how much the price of a financial asset varies over time, and it is often associated with risk. A volatile asset like Bitcoin is risky to hold as its value can substantially increase or decrease on any given day. The more volatile an asset, the more people will want to limit their exposure to it.

However, it is important to note that Bitcoin's volatility comes with risks. Investors should be prepared for big downturns and drawdowns of 50% to 80%. While Bitcoin has recovered many times, there is also a possibility that it could go to zero if several crypto platforms fail and there is a massive sell-off.

Therefore, when considering investing in Bitcoin, it is crucial to understand the risks involved and ensure proper diversification and position sizing in your portfolio.

Supply and demand

Bitcoin's price is influenced by supply and demand. The price goes up when there is more demand for Bitcoin and goes down when there is less demand.

Bitcoin's supply is limited—there is a finite number of bitcoins, and the final coins are projected to be mined in 2140. The Bitcoin block reward is reduced by half about every four years, slowing down the rate at which new bitcoins are rewarded. This is called a halving. The last halving was on April 19, 2024, which brought the block reward to 3.125 bitcoin.

Demand for Bitcoin has been fuelled by increased media coverage, investing "experts", and business owners touting its value. Bitcoin has also become popular in countries with high inflation and devalued currencies, such as Venezuela. Additionally, it is popular with those who use it to transfer large sums of money for illicit and illegal activities.

In April 2024, the price of Bitcoin soared to more than $75,000 on one exchange after the Securities and Exchange Commission approved several Bitcoin Spot ETFs, a result of an increase in demand.

However, it's important to note that Bitcoin is a risky investment with high volatility. Before investing, it's crucial to understand the risks involved: you could lose all or a large portion of your investment.

The role of governments

One of the main reasons for government wariness towards Bitcoin is its decentralised nature, which challenges the traditional financial system. Bitcoin's network does away with intermediaries, such as banks and financial institutions, that governments typically use to distribute, regulate and tax the flow of money in an economy. This could potentially make the role of governments in managing and regulating economic policy redundant.

Additionally, Bitcoin enables citizens to circumvent capital controls imposed by governments, which can lead to currency outflows and debase the value of their currency. A notable example is China, where citizens have an annual limit of $50,000 to purchase foreign currency. In 2020, more than $50 billion moved from East Asia-based Bitcoin wallets to wallets in other countries, indicating that Chinese citizens may have used Bitcoin to bypass government regulations.

Another concern for governments is Bitcoin's association with illicit activities and its use by criminals to evade detection. The pseudonymous nature of Bitcoin's network makes it difficult to trace transactions and identify users, providing a convenient conduit for financial transactions related to ransomware, darknet activities, and sanctioned entity transactions.

However, some governments have actively embraced Bitcoin. El Salvador stands out as the first country to adopt Bitcoin as legal tender and has been purchasing 1 BTC daily since November 2022. The United States, despite its ambiguous stance, is the largest holder of Bitcoin, with over 213,297 BTC obtained through cryptocurrency seizures. China, despite its crackdown on cryptocurrency, holds the second-largest reserves, mostly from seizures. Other notable holders include the United Kingdom, Germany, and Ukraine.

In conclusion, the role of governments in the world of Bitcoin is multifaceted. While some nations view it as a threat to their authority and financial systems, others have recognised its potential as a legal tender and a strategic financial investment. As digital assets continue to integrate into the global financial system, the interplay between governments and cryptocurrencies will be pivotal in shaping the future of cryptocurrency adoption and regulation.

Public interest and media coverage

Impact of Public Interest and Media Coverage on Bitcoin's Price

• Media coverage and investor interest can significantly impact Bitcoin's demand and, consequently, its price. Positive media attention and growing public interest can drive up demand and price, while negative news and reduced interest can lead to price declines.
• The approval of Bitcoin exchange-traded funds (ETFs) by the SEC in January 2024 sparked increased investor interest and contributed to a surge in Bitcoin's price.
• In 2021, a tweet from Elon Musk caused Bitcoin's price to drop by 30% in a single day, wiping out approximately $365 billion from the cryptocurrency market.
• News and events related to crypto-related crimes, such as exchange hacks or scams, often trigger negative sentiment and can lead to Bitcoin price drops.
• Media coverage of regulatory actions and governance issues surrounding cryptocurrency can also influence Bitcoin's price. For example, China's crackdown on cryptocurrency in 2018 led to a 15% price drop.
• The source and geographical region of the news can amplify its impact on Bitcoin's price, especially in areas with high crypto activity, such as North America and Asia.

Volatility and Investor Behaviour

• Bitcoin's price is notoriously volatile, and media coverage can fuel this volatility by shaping investor sentiment and behaviour.
• Investor behaviour is often influenced by media coverage, with negative news leading to reduced risk appetite and positive news stimulating investment.
• The crypto-economy and market discourse have less impact on Bitcoin's price compared to crypto-related crime and governance discourses, which tend to have a more pronounced effect on market sentiment.
• The weight of negative sentiment in specific geographical regions, such as North America and Asia, can disproportionately affect investor behaviour and, consequently, Bitcoin's price.

Expert Opinions on Media Influence

• Research by Kelly Ann Coulter in 2022 provides empirical evidence that media discourses on cryptocurrency, specifically Bitcoin, can have a 'social signal' effect on crypto-financial markets, particularly on Bitcoin's price volatility.
• The study identified three key macro discourses in international news media from 2018 to 2020: crypto-related crime, financial governance, and economy and markets.
• Coulter's analysis showed that these discourses had a negative impact on Bitcoin's market price within 24 hours of the publication of crypto-related news articles.
• The source and geographical region of the news amplified the volatility effect, suggesting that media influence on Bitcoin's price may be region-specific.

Bitcoin's future

Some factors that could positively influence Bitcoin's future include:

• The Spot Bitcoin ETFs, which have contributed to Bitcoin's growth and attracted interest from retail investors.
• The Bitcoin halving event, which occurs every four years and cuts BTC rewards to miners by 50%, helping to contract supply and boost prices.
• Accumulation by "Bitcoin Whales," or large investors, which may contribute to a rise in Bitcoin's price.
• Increased adoption of Bitcoin, approval of BTC ETFs by various countries, and the weakening of traditional fiat currencies.

However, there are also risks and uncertainties that could impact Bitcoin's future:

• High volatility and the potential for significant downturns.
• Regulatory and legal issues, such as India's stance on cryptocurrencies and the SEC's influence on crypto exchanges.
• The impact of rising interest rates and inflation on the broader economy, which could affect investor sentiment and demand for riskier assets like Bitcoin.
• The possibility of a serious global recession, which could lead to a sell-off in risky assets.

Overall, while Bitcoin has the potential for high returns, it is a risky investment. Experts advise investors to proceed with caution, conduct thorough research, and only invest what they can afford to lose.

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