Understanding Bitcoin Share Value For Investment

Bitcoin is a decentralised virtual currency that was launched in 2009 by a pseudonymous computer programmer or group of programmers. It is renowned for its highly volatile price, which has seen dramatic peaks and troughs since its launch. As of August 2024, the price of Bitcoin is around $58,000 to $60,000, with a 24-hour trading volume of $32.97 billion. Bitcoin's price has increased by 2.59% in the last 24 hours, and it has a market cap of $1.2 trillion. The minimum order size for Bitcoin is 0.00000001 BTC, meaning that anyone can purchase a fraction of a bitcoin with as little as one US dollar.

Bitcoin's price history

Bitcoin was introduced in 2009 by the anonymous developer(s) Satoshi Nakamoto. In July 2011, two years after its creation, one coin cost $13.91. In July 2016, the price of one bitcoin was $656.17, and in July 2020, it was $10,990.87.

Bitcoin surged in popularity in 2017 when it rallied from $900 to almost $20,000 in less than a year. In April 2021, it reached an all-time high of over $63,000, but lost 50% of its value over the next three months. In March 2024, it again reached an all-time high, exceeding 73,000 USD, but by August of the same year, it had dropped to below $50,000.

The price history of Bitcoin reflects its journey from a fringe asset to a mainstream financial instrument. The market cap has grown, attracting institutional investors, hedge funds, and governments, boosting its credibility. However, the fluctuating market cap has also highlighted the volatility and risk associated with Bitcoin, sparking debates about its role in the financial system.

Bitcoin's price volatility

Bitcoin is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity. It is the most well-known and largest cryptocurrency in the world.

Bitcoin's price is volatile, and this volatility is driven by speculation. Crypto investors bet that Bitcoin's price will go up or down to make profits. This causes a sudden increase or decrease in Bitcoin's price, which leads to volatility. Volatility is a measure of how much the price of a financial asset varies over time. The more volatile an asset, the riskier it is to hold. On any given day, the value of a volatile asset may go up or down significantly.

Bitcoin's volatility is measured by how much its price fluctuates relative to the average price over a period of time. The standard deviation of daily returns for the preceding 30- and 60-day windows is used to calculate historical volatility based on past Bitcoin prices.

Bitcoin has rebounded since then, but investors should be prepared for such outsized price swings. The token's performance differs from its billing as digital gold, as gold's price changes are generally less volatile. For context, gold's volatility averages around 1.2%, while other major currencies average between 0.5% and 1.0%.

The risks associated with Bitcoin's price volatility are essential to consider when investing. Volatility increases the cost of hedging, impacting the price of merchant services. Additionally, the lack of guaranteed value and the digital nature of Bitcoin introduce inherent risks.

To manage the risks of Bitcoin's price volatility, investors can consider dollar-cost averaging by spreading their purchases over time instead of making a large investment all at once. Additionally, investors can explore diversified portfolios of cryptocurrencies to reduce exposure to any single asset.

Bitcoin investment vehicles

Cryptocurrency Exchanges

You can purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, and Crypto.com. These exchanges offer a variety of cryptocurrencies and carry different fees and consumer protections, so it is important to do your research before choosing one.

Traditional Stockbrokers

A few traditional brokers, like Robinhood, Webull, TradeStation, and Fidelity, offer their customers the ability to buy and sell Bitcoin. These platforms often charge no fees for Bitcoin trades.

Bitcoin ATMs

Bitcoin ATMs are similar to normal ATMs and allow you to buy and sell Bitcoin with cash. They are often placed in locations where traditional ATMs are found, such as convenience stores. It is important to consider the fees associated with these transactions and have a plan for where to send the Bitcoin once purchased.

Bitcoin Exchange-Traded Funds (ETFs)

A Bitcoin ETF tracks the price of Bitcoin and trades on major exchanges. In January 2024, the Securities and Exchange Commission (SEC) approved the first spot Bitcoin ETFs, making it easier for traditional investors to gain access to Bitcoin. Examples of Bitcoin ETFs include the Grayscale Bitcoin Trust (GBTC) and the Valkyrie Bitcoin Miners ETF (WGMI).

Peer-to-Peer Money Transfer Apps

Cash transfer services like PayPal, Venmo, and Cash App allow users to purchase, store, send, and sell Bitcoin directly through their apps. This option may be convenient for those already familiar with these interfaces.

Bitcoin Futures and Derivatives

Bitcoin futures and derivatives are another way to gain exposure to Bitcoin without directly owning it. Bitcoin futures are derivative products with Bitcoin as their underlying security. They are typically riskier than investing directly in Bitcoin. Additionally, decentralized exchanges like Exodus and Bisq allow users to connect directly with third-party buyers or sellers.

Bitcoin Investment Trusts

Bitcoin investment trusts hold Bitcoin for investors, track prices of Bitcoin and other cryptocurrencies, and trade in over-the-counter (OTC) markets. An example of a Bitcoin investment trust is the Grayscale Bitcoin Trust (GBTC), which is available to individual and institutional investors.

Bitcoin Strategy ETFs

Bitcoin strategy ETFs do not invest directly in Bitcoin but instead invest in Bitcoin futures contracts or companies involved in the Bitcoin industry, such as mining. An example is the VanEck Bitcoin Strategy ETF (XBTF), which invests in Bitcoin futures and U.S. Treasuries.

When considering investing in Bitcoin, it is important to remember that it is a highly volatile and risky asset. It is recommended to only invest what you can afford to lose and to consult with a financial professional before making any investment decisions.

Bitcoin's value

Bitcoin is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity. It was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. Bitcoin is the most well-known and largest cryptocurrency in the world, and its popularity has inspired the development of many other cryptocurrencies.

Bitcoin's price continued to fluctuate over the next few years, with strong gains in 2013. It crossed $1,000 in November 2013 and closed out the year at $732. Prices slowly climbed through 2016, and in 2017, Bitcoin's price hovered around $1,000 until it broke $2,000 in mid-May and then skyrocketed to close at $19,188 on 16 December 2017.

Bitcoin's price moved sideways in 2018 and 2019, with small bursts of activity. For example, there was a resurgence in price and trading volume in June 2019, with the price surpassing $10,000. However, it fell to a closing price of $6,612 by mid-December.

The COVID-19 pandemic and subsequent government policies in 2020 fed investors' fears about the global economy and accelerated Bitcoin's rise. Bitcoin's price closed at $28,993 on 31 December 2020, increasing 416% from the start of that year.

In 2021, Bitcoin's price continued to surge, surpassing $40,000 by 7 January and reaching a peak of $69,000 in November. However, prices were down by 50% by the summer, closing at $30,829 on 19 July. Bitcoin's price climbed again in September, scraping $52,956, but a large drawdown took it to a closing price of $40,597 about two weeks later.

Between January and May 2022, Bitcoin's price continued to gradually decline, falling further to $29,000 on 11 May. This was the first time since July 2021 that Bitcoin closed under $30,000. On 13 June 2022, crypto prices plunged, and Bitcoin dropped below $23,000 for the first time since December 2020. Bitcoin then dropped below $20,000 by the end of 2022.

Fortunes changed for Bitcoin in 2023, which saw a stellar rise in the price of the cryptocurrency. It opened the year at a price of $16,530 and rose consistently throughout the year, ending at $42,258.

In January 2024, the long fight for Bitcoin Spot ETFs came to a close after the SEC was forced by courts to review its denial of certain Bitcoin-related investment products. This caused Bitcoin's price to climb quickly, and in late February and early March, it once again breached $60,000, setting a high of $70,184 on 8 March. On 14 March 2024, Bitcoin reached its all-time high price of $75,830.

Bitcoin's price is influenced by several factors, including supply, demand, and market sentiment. By design, only 21 million Bitcoins will ever be created, and the closer Bitcoin gets to this limit, the higher its price should be, assuming other factors remain the same. Bitcoin's price also tends to follow stock market trends and is affected by regulatory activity and the emergence of competing cryptocurrencies.

Bitcoin's risks

Risks of Investing in Bitcoin

Bitcoin is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity. It is the most well-known and largest cryptocurrency in the world. However, as with any investment, there are risks involved in investing in Bitcoin. Here are some of the key risks to consider:

• Volatile and fluctuating market: The price of Bitcoin is highly volatile and constantly changing. The market is unpredictable, and there is no guarantee of getting a return on investment. To minimize the risk of massive losses, investors should monitor the market closely and make small investments.
• Cyberattacks and hacking: Bitcoin is technology-based, which makes it vulnerable to cyberattacks and hacking. If an investor loses their Bitcoin due to hacking or theft, there is usually no way to retrieve it. Additionally, exchanges and online wallets are common targets for hackers, and even smart wallets do not guarantee complete security.
• Fraud: The lack of central authority and regulation in the Bitcoin market creates opportunities for fraudulent activities. Fake exchanges and scams can dupe unsuspecting investors out of their Bitcoins.
• Little or no regulation: The Bitcoin market currently operates with little to no major regulations. The lack of taxation and government stance on cryptocurrency can lead to future problems, especially if Bitcoin poses competition to government-issued currencies.
• Technology reliance: As an online exchange, Bitcoin is entirely reliant on technology. Without the underlying technology, Bitcoin has no value. This makes Bitcoin owners vulnerable to cyber threats, online fraud, and system failures.
• Block withholding: Bitcoin mining involves solving mathematical equations called "blocks." However, mining pools can use their computational power to hide these blocks from honest miners, allowing a select few to benefit while others lose out.
• Limited acceptance: Despite its popularity, only a few companies and online stores accept Bitcoin as a legitimate form of currency. This limited acceptance could impact its future viability and value.
• Potential Ponzi scheme: Some critics argue that Bitcoin is a Ponzi scheme, where people at the top benefit from the ignorance of others. As more people invest, a bubble economy is created, which could eventually burst, rendering Bitcoin useless and causing significant financial losses.
• Currency or investment uncertainty: The nature of Bitcoin is ambiguous, and it is unclear whether it will become a widely accepted currency or remain primarily an investment vehicle. With its constantly shifting market, no regulation, and zero physical collateral, investors could potentially lose everything.
• Legal and tax risks: The legal standing of cryptocurrency is still evolving, and investors may face unclear or changing regulatory requirements. Additionally, profits from cryptocurrency trading are subject to capital gains tax, and there are complex reporting obligations for foreign accounts and holdings.

Frequently asked questions