The Rise Of Bitcoin: Who's Invested In The Crypto Craze?

Bitcoin has attracted a wide range of investors, from individuals to large corporations. The cryptocurrency is often seen as a way to diversify a portfolio, given its price movements are not closely correlated with the stock market. While individuals once held the most bitcoin, businesses now account for the majority of bitcoin investments. These include brokerages, exchanges, business intelligence and analysis companies, and venture capital groups. Notable investors include Tesla, MicroStrategy, Coinbase, and the United States government, which holds over 210,000 bitcoins.

Bitcoin's value and volatility

There are several reasons for Bitcoin's volatile price history. Firstly, like most commodities, Bitcoin's price depends on supply and demand. Bitcoin has a limited supply of 21 million coins, and as it gets closer to this limit, prices are likely to climb. Secondly, media outlets, influencers, and industry figures can create investor concerns, leading to price fluctuations. For example, in 2021, news of China cracking down on banks completing crypto transactions, along with Tesla's decision to no longer accept Bitcoin as payment, contributed to a sell-off among digital currencies.

Thirdly, Bitcoin is still a relatively new asset class and is in the price discovery phase. This means that its prices will continue to change as investors, users, and governments work through the initial growing pains and concerns. Fourthly, Bitcoin's value is derived from its decentralised network, with no central authority to intervene in the market. This means that no central bank or government can step in to support or prop up markets and artificially subdue volatility.

Finally, Bitcoin's volatility is driven by investor actions. Large investors, known as "Bitcoin whales", can influence the market value by liquidating their holdings. If these investors were to sell their Bitcoin holdings suddenly, prices would plummet as other investors panicked.

Overall, Bitcoin's value and volatility are a result of a combination of factors, including supply and demand, media influence, its decentralised nature, and investor actions. While Bitcoin has seen tremendous growth, it is also known for its plunges, and investors should be aware of the risks before deciding to invest.

The risks of investing in Bitcoin

Bitcoin is a type of cryptocurrency, a digital currency that is issued and transmitted through an online, peer-to-peer network. While Bitcoin is currently the most successful currency of its kind, there are several risks associated with investing in it.

Firstly, the Bitcoin market is highly volatile and unpredictable. The price of Bitcoin is constantly fluctuating, and there is no guarantee of getting a return on investment. The market is also susceptible to manipulation by crypto exchanges, media owners, and influential investors through strategies such as wash trading, dark pool trading, and pump and dumps.

Secondly, Bitcoin investments are vulnerable to cyberattacks and hacking. Since Bitcoin is technology-based and stored in digital wallets, it can be stolen or lost, and there is often no way to retrieve the lost coins. Additionally, the lack of central authority backing the value of Bitcoin means that there may be no recourse if complications with transactions or ownership arise.

Thirdly, the lack of regulation in the Bitcoin market poses risks to investors. The government's stance on cryptocurrency is unclear, and the lack of taxation could lead to problems if Bitcoin is seen as competition for government currency. The lack of regulation also leaves investors vulnerable to fraud and scams.

Another risk to consider is the slow-down of the Bitcoin network. Bitcoin mining, the process of creating new Bitcoins and verifying transactions, can slow down if the rewards for solving blocks and transaction fees are not sufficiently high, or if there is a high volume of transactions. This can impact the value and liquidity of Bitcoins.

Lastly, the loss of confidence in digital currencies can lead to a collapse in trading activities and a sudden drop in value. Most cryptocurrencies, including Bitcoin, are not backed by central banks or international organizations, and their value is solely determined by market participants' transactions. If investors lose confidence in Bitcoin, it could lead to a rapid decline in its value.

How to buy Bitcoin

There are several ways to buy Bitcoin, each with its own advantages and disadvantages. Here is a step-by-step guide on how to get started with buying Bitcoin:

Step 1: Choose a Bitcoin Service or Exchange

The first step is to decide how you want to buy Bitcoin. You can use a Bitcoin wallet app, a brokerage service, or a cryptocurrency centralized exchange (CEX). Popular options include the Bitcoin.com Wallet app, eToro, Gemini, Kraken, Coinbase, and Crypto.com. Each platform will have its own fees and consumer protections, so be sure to research and choose one that suits your needs.

Step 2: Fund Your Account

Once you've chosen a platform, you'll need to fund your account. This typically involves linking a bank account or using a credit or debit card to deposit funds. Keep in mind that using a credit card to buy cryptocurrency can be risky and may come with high transaction fees.

Step 3: Place Your Order

After your account is funded, you can place your order to buy Bitcoin. Depending on the platform, you may be able to purchase Bitcoin by tapping a button or entering Bitcoin's ticker symbol: BTC. You will then need to input the amount you want to invest. Remember that Bitcoin can be traded as fractional shares, so you don't need to buy a full Bitcoin.

Step 4: Store Your Bitcoin

Once you've purchased Bitcoin, you'll need to store it in a digital wallet. There are two main types of wallets: hot wallets and cold wallets. Hot wallets are typically provided by exchanges and offer faster transactions, but they are more vulnerable to hacking. Cold wallets, on the other hand, are offline storage devices that provide greater security but may make transactions take longer. Examples of cold wallets include hardware wallets like Trezor and Ledger, as well as paper wallets.

Step 5: Understand the Risks

It's important to remember that investing in Bitcoin carries significant risks. Bitcoin is highly volatile, and its value can fluctuate widely. As such, it's generally recommended that cryptocurrencies make up only a small portion of your investment portfolio. Additionally, there are security concerns, as Bitcoin exchanges and wallets have been hacked in the past. Always do your research, understand the risks, and only invest what you can afford to lose.

The environmental impact of Bitcoin mining

Bitcoin mining has a large environmental impact. It requires large amounts of energy, more than is used by some small countries. The process of mining is how new bitcoins are minted, and it is done by a network of computers around the world operated by "miners". These miners use purpose-built computers to solve complex math puzzles in order to allow transactions to go through. The more the price of Bitcoin increases, the more attractive mining becomes, and the more energy the process consumes.

The Bitcoin network now consumes more energy than many countries. According to Digiconomist's Bitcoin Energy Consumption Index, the network consumes 118.9 TWh/year of energy, which is more than the power consumption of the Netherlands or Pakistan. The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin uses an estimated 140 TWh of electricity annually (0.63% of global electricity use) and about 352 TWh of energy (0.22% of global energy production). This is more than Pakistan and Ukraine, using the latest country energy estimates from 2019.

The energy used for Bitcoin mining is predominantly generated by fossil fuels. The Cambridge Centre for Alternative Finance estimates that coal accounts for 38% of Bitcoin's mining power. Most mining facilities are located in regions that rely on coal-based facilities or hydroelectricity, which are cheap and little taxed. Inner Mongolia alone holds about 8% of the computing power used by the Bitcoin network. The United States, the largest country for Bitcoin mining, accounts for 37.84% of mining activities. As a result, three countries heavily dependent on fossil fuels (the US, China, and Kazakhstan) are responsible for around 72% of the world's Bitcoin mining.

Bitcoin mining also generates significant electronic waste, as mining hardware quickly becomes obsolete. The Bitcoin network generates over 70,000 tons of electronic waste annually.

Bitcoin's future as an alternative currency

On the other hand, Bitcoin has been criticised for its volatility, security concerns, and the environmental impact of its energy-intensive mining process. It has also faced increasing competition from alternative cryptocurrencies (altcoins) such as Ethereum, Litecoin, and Monero, which offer improved features and faster transaction speeds.

Additionally, Bitcoin's blockchain network has struggled to reach consensus on upgrades, resulting in slower transaction validation and settlement times compared to its peers. This has led some to question its ability to scale and maintain its dominance in the market.

While Bitcoin has the first-mover advantage and a strong network effect, its future as the leading alternative currency is not guaranteed. The cryptocurrency space is highly dynamic and innovative, and new coins with improved features could potentially overtake Bitcoin in terms of adoption and market share.

Therefore, Bitcoin's future as an alternative currency depends on several factors, including its ability to address its limitations, maintain its relevance in the face of competition, and gain wider acceptance as a medium of exchange.

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