The Bitcoin Investment: How Much Did You Risk?

Bitcoin has been a trending topic for investors since its inception in 2009. The cryptocurrency has had an eventful 11-year history, with its price being influenced by various factors, including the COVID-19 pandemic, investor interest, corporate adoption, and acceptance as a payment method by platforms like PayPal. With its volatile nature, investing in Bitcoin comes with potential gains and losses, and individuals have shared varied experiences with their investments, ranging from substantial profits to unfortunate losses.

How much is $1 Bitcoin worth in US dollars?

As of August 2024, 1 Bitcoin is worth a variable amount of US Dollars, depending on the source. According to Coinbase, 1 Bitcoin is worth $58,024.20. Forbes gives a figure of $56,938.435146, while BeInCrypto gives a figure of $59,563. Crypto.com gives a figure of $61,347.93, and Coindesk gives a figure of $60,683.20.

Bitcoin's price is renowned for being highly volatile, and it has become the top-performing asset of any class over the past decade, climbing a staggering 9,000,000% between 2010 and 2020. The value of Bitcoin has risen steadily since it was first introduced, and it has grown in popularity as well. Its actual value constantly fluctuates because Bitcoin trading is active 24/7.

Bitcoin is the world's first cryptocurrency, built on distributed ledger (blockchain) technology. It was founded by Satoshi Nakamoto, a pseudonym representing an individual or group of individuals, who published the white paper on October 31, 2008. It is currently the world's biggest cryptocurrency, maintaining market dominance for the past decade.

Bitcoin introduced a type of currency (called cryptocurrency) that can be created and tracked on a public ledger (called a blockchain) and which is not controlled by any central authority like a company or a country. Unlike traditional currencies, everyone who can contribute the computational power needed to maintain this network will keep a record of every single Bitcoin transaction. In return, these participants will be able to gain Bitcoin by mining, which is the process of validating transactions being added to the ledger by solving complex puzzles.

How volatile is Bitcoin?

Bitcoin is considered a volatile asset, with its value fluctuating significantly over time. Volatility is a measure of how much the price of a financial asset varies, and in the case of Bitcoin, it has been known to rise or fall by thousands of dollars within a single day. This volatility is driven by various factors, including supply and demand, investor sentiment, media influence, and government regulations.

One of the primary reasons for Bitcoin's volatility is the speculation and investor actions that surround it. Crypto investors often make bets on whether Bitcoin's price will increase or decrease, leading to sudden price fluctuations. Additionally, fear and greed play a significant role, with investors fearing they will miss out on gains or fall victim to losses, prompting panic buying or selling. This behaviour further contributes to Bitcoin's volatile nature.

When compared to traditional asset classes, Bitcoin has exhibited higher volatility. From 2020 to 2024, Bitcoin was three to four times more volatile than various equity indices. However, it is important to note that Bitcoin's volatility is not always higher than that of individual securities. For example, over the last two years, Bitcoin has been less volatile than Netflix stock.

Bitcoin's volatility is also influenced by its limited supply. With a maximum limit of 21 million coins, the closer the circulating supply gets to this limit, the more prices are expected to climb. This dynamic can further contribute to price volatility as investors compete for ownership in a dwindling supply environment.

It is worth mentioning that Bitcoin is still in its infancy, having been publicly available only since 2009. As it matures and its market cap grows, experts predict that Bitcoin's volatility will decline. This prediction aligns with the historical precedent set by gold, which exhibited high volatility when the US came off the gold standard in the 1970s but eventually stabilised as it became a recognised asset class.

In summary, Bitcoin is a highly volatile asset, with its value experiencing significant fluctuations. This volatility is influenced by various factors, including investor behaviour, supply and demand dynamics, media attention, and regulatory changes. However, as Bitcoin matures, its volatility is expected to decrease, potentially stabilising in a similar manner to established asset classes like gold.

How to buy Bitcoin

There are several ways to buy Bitcoin, including:

• Cryptocurrency exchanges: You can purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, and Crypto.com. These exchanges offer a range of cryptocurrencies and carry different fees and consumer protections, so it's important to research before choosing one.
• Traditional stockbrokers: A few traditional investment brokers, such as Robinhood Crypto, Webull, TradeStation, and Fidelity, offer their customers the ability to buy and sell Bitcoin.
• Bitcoin ATMs: These work like normal ATMs, but you can use them to buy and sell Bitcoin. They are often placed in locations where normal ATMs are found, such as convenience stores.
• Bitcoin exchange-traded funds (ETFs): The Securities and Exchange Commission (SEC) recently approved spot Bitcoin ETFs, which track the price of Bitcoin and trade over major exchanges. These ETFs are available through traditional brokerage accounts.
• Peer-to-peer money transfer apps: Cash transfer services like PayPal, Venmo, or Cash App allow users to purchase, store, send, and sell Bitcoin directly through their apps.
• Bitcoin wallet apps: You can buy Bitcoin through Bitcoin wallet apps like the Bitcoin.com Wallet app.
• Brokerages: You can buy Bitcoin through brokerages like eToro.
• Cryptocurrency centralized exchanges (CEXs): You can buy Bitcoin through cryptocurrency centralized exchanges (CEXs) like those listed on the Bitcoin.com website.

Regardless of the method you choose, there are a few things to keep in mind when buying Bitcoin:

• Research and understand the risks: Bitcoin and other cryptocurrencies are highly volatile and speculative, so it's important to do your research and understand the risks involved before investing.
• Don't invest more than you can afford to lose: Financial experts generally recommend investing no more than 10% of your portfolio in risky assets like Bitcoin.
• Use a secure, private internet connection: When making any financial transactions online, including buying Bitcoin, it's important to use a secure and private internet connection. Avoid using public Wi-Fi or computers in places like coffee shops or hotels.
• Be aware of fees: Different methods of purchasing Bitcoin will incur different fees, so be sure to understand the fees associated with your chosen method before proceeding.
• Store your Bitcoin securely: Once you've purchased Bitcoin, you'll need to store it securely in a digital wallet. There are two main types of digital wallets: hot wallets and cold wallets. Hot wallets are connected to the internet and offer faster transactions, while cold wallets are offline and provide extra security.

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 user network. It is a new frontier in the world of finance, and as with any new technology, there are some risks involved. Here are some of the key risks that you should be aware of before investing in Bitcoin:

Volatile and Fluctuating Market

The price of Bitcoin is constantly changing and can be extremely volatile. This makes it difficult for investors to build confidence and secure gains. The value of Bitcoin can be influenced by various factors such as sentiment, speculation, and market manipulation, making it hard to predict if you will get a return on your investment. To minimize the risk of massive losses, it is recommended to keep a close eye on the market and make small investments.

Cyber-Security Risks and Hacking

Bitcoin is a technology-based currency, which means it is vulnerable to cyberattacks and hacking. If your Bitcoin wallet is hacked or you lose your private key, there is often no way to retrieve your coins. Many reports suggest that buyers lose their investments on exchanges and mining losses. Additionally, the lack of central authority backing the value of Bitcoin means that there may be no standard practice for recovering missing funds in the event of a hack.

Fraud and Lack of Regulation

The Bitcoin market currently operates with little to no major regulations, which can create opportunities for fraud. The lack of a clear regulatory framework can make it challenging for investors to understand their tax obligations and record-keeping requirements. This uncertainty has led to concerns about the possibility of future restrictions or even a ban on cryptocurrencies.

Technology Reliance and Custody

Bitcoin is entirely reliant on technology, and without it, cryptocurrency is worthless. Investors are vulnerable to cyber threats and online fraud, and if the system goes down, they could lose their investment. Additionally, the custody of Bitcoin is a concern. Unlike traditional investments, Bitcoin does not have official safeguards or insurance, and rebates on lost investments are not guaranteed.

Peer-to-Peer Transaction Risks

Bitcoin can be traded directly between parties without the involvement of intermediaries. In these cases, all risks, such as double-selling, are borne by the transacting parties. This lack of intermediary protection can expose investors to additional risks and complications.

These are just a few of the key risks associated with investing in Bitcoin. It is important for anyone considering investing in Bitcoin or other cryptocurrencies to carefully research and understand the potential risks and uncertainties involved.

Bitcoin's price history

The price history also indicates growing acceptance and use of Bitcoin, with periods of stability observed over time. The market cap of Bitcoin has grown significantly, attracting institutional investors, hedge funds, and even governments, boosting its credibility as a legitimate asset class.

Significant price movements often coincide with major events, such as regulatory announcements, technological advancements, or macroeconomic trends. For example, Tesla's announcement in March 2021 that it had acquired 1.5 billion USD worth of Bitcoin, as well as the IPO of the US's biggest crypto exchange, fueled mass interest and positively impacted Bitcoin's price.

Despite the fluctuations and controversies surrounding Bitcoin, its price history demonstrates its increasing importance in the global economy and its journey from a fringe asset to a mainstream financial instrument.

Frequently asked questions