Is Bitcoin A Worthy Investment?

Bitcoin is a decentralised, borderless, and secure digital currency with a finite supply of 21 million coins. Its value is driven by factors such as scarcity, potential for high returns, and its role as a hedge against inflation.

Bitcoin's price is highly volatile, and its value is dependent on supply and demand. As of August 2024, its price hovers around $58,948, a growth of 11,690% since May 2016.

Investing in Bitcoin carries significant risks, including price volatility, lack of regulatory framework, and susceptibility to digital threats. However, it offers high potential returns, liquidity, and the prospect of being at the forefront of digital currency evolution.

Before investing in Bitcoin, it is crucial to carefully consider your risk tolerance, financial goals, and understanding of the cryptocurrency markets. It is generally advised to invest only what you can afford to lose and to keep your FOMO in check.

Bitcoin's value and demand

Scarcity plays a crucial role in Bitcoin's value proposition. With a limited supply of 21 million bitcoins, the decreasing availability of unrewarded coins increases demand. This artificial scarcity is coded into the Bitcoin algorithm, ensuring that its supply remains restricted.

Another factor contributing to Bitcoin's value is its decentralised nature. Unlike traditional currencies controlled by central banks, Bitcoin operates on a decentralised network of computers worldwide. This means no single institution or government can manipulate its value, making it independent of traditional economic systems.

The potential for high returns also drives Bitcoin's value and demand. Bitcoin's volatile nature creates opportunities for significant profits, attracting investors seeking substantial gains. However, it's important to note that this volatility also increases risk, and there is no guarantee of returns.

The acceptance and adoption of Bitcoin as a medium of exchange and a store of value by an increasing number of individuals, businesses, and investors further enhances its value and demand. As more people become familiar with cryptocurrencies and adopt them, Bitcoin's demand and value increase.

Lastly, Bitcoin's position as a hedge against fiat currency inflation and its potential to be a non-correlated asset, similar to gold, make it attractive to investors. Its capped supply of 21 million coins and independence from traditional economic systems contribute to its value proposition as a hedge against inflation.

Bitcoin's risks and benefits

Bitcoin Risks and Benefits

Bitcoin is a risky investment with high volatility and is generally only recommended for investors with a high-risk tolerance. Before investing, it is important to understand the risks and do your research. Here are some of the key risks and benefits of Bitcoin:

Risks

• Price volatility: Bitcoin has experienced rapid surges and crashes in its value. For example, in 2018, it fell more than 75% from its all-time high.
• Irreversible transactions: If you lose access to your Bitcoin wallet or send Bitcoin to the wrong address, your funds could be lost forever.
• Lack of consumer protection: Crypto exchanges lack basic consumer protections like insurance from the Securities Investor Protection Corporation and the Federal Deposit Insurance Corporation.
• Security vulnerabilities: As a crypto owner, you could lose your private key or become a victim of hacking, phishing, or other malicious attempts to access your coins.
• Regulatory uncertainty: The regulatory landscape around Bitcoin and cryptocurrencies is still evolving, and sudden regulatory changes could impact how you use or access your crypto.
• High energy consumption: Bitcoin mining requires a lot of energy, which can be a concern for environmentally conscious investors.

Benefits

• High potential returns: Bitcoin has historically offered the potential for high returns, and its price can go up as well as down.
• Decentralization: Bitcoin is decentralized, meaning it is not controlled by any single government or central bank. This also makes it a non-correlated asset, meaning it may not follow the trends of other assets like stocks.
• Accessibility: Bitcoin can be easily accessible to everyone, even those without access to traditional banking. Only an internet connection and a crypto wallet are required.
• Lower fees and faster transactions: Bitcoin transactions can have lower fees and faster transfer times than traditional bank transactions, especially for global wires.
• Blockchain technology: Bitcoin operates on secure, decentralized blockchain technology, which is transparent and immutable, meaning it cannot be changed, manipulated, or deleted.

Bitcoin's future value

Looking further ahead, Bitcoin's price is predicted to range between $82,522 and $155,284 in 2026, with an average of $115,569. By 2027, the minimum BTC price might drop to $219,078, while its maximum could reach $252,266, with an average trading cost of around $225,158.

Some experts believe that Bitcoin's value could soar to $1 million in the future, while others predict a more modest $100,000. The immense promise of Bitcoin as a decentralized financial innovation and its potential to supplant traditional fiat currencies worldwide drive these optimistic projections.

However, it's important to remember that Bitcoin is a highly volatile and risky investment. While it has offered the potential for high returns, there have also been significant downturns, and there is always the possibility that it could lose all value. As with any investment, conducting thorough research and understanding the risks is crucial before making any decisions.

Bitcoin's past performance

Bitcoin was introduced in 2009 and had no trading value during its initial phase. In 2010, it had a price of $0.003 per Bitcoin, and by 2011, the price had increased to $1 per Bitcoin. The cryptocurrency saw its first significant price increase in October 2010 when its value jumped from less than $0.10 to $0.20. In 2011, it started growing past $1, reaching a peak of $29.60 on June 8, 2011, but this was followed by a sharp recession, and Bitcoin's price closed the year at about $5.

Bitcoin's price continued to fluctuate over the next few years, with strong gains in 2013, a relatively uneventful year in 2012, and a resurgence in 2019. In 2020, the COVID-19 pandemic and subsequent government policies fuelled investors' fears about the global economy, and Bitcoin's price rose to $18,383 by November 23, closing the year at $28,993, a 416% increase from the start of the year.

Bitcoin's price continued to reach new highs in 2021, surpassing $40,000 by January 7, and reaching over $60,000 in mid-April as Coinbase, a cryptocurrency exchange, went public. However, prices were down by 50% by the summer, closing at $30,829 on July 19. The cryptocurrency saw another bull run in September, with prices scraping $52,956, but this was followed by a large drawdown, with a closing price of $40,597 about two weeks later. On November 10, 2021, Bitcoin reached an all-time high of $69,000 before closing at $64,921.

Between January and May 2022, Bitcoin's price gradually declined, falling to $29,000 on May 11. Crypto prices plunged further in June, with Bitcoin dropping below $23,000, and ending the year below $20,000.

However, Bitcoin's fortunes changed in 2023, with a stellar rise in its price. It opened the year at $16,530 and rose consistently, ending the year at $42,258. In 2024, the approval of Spot Bitcoin ETFs by the SEC led to a quick climb in Bitcoin's price, which breached $60,000 again in late February and early March, setting a high of $69,210 on March 6 and another of $70,184 on March 8. On March 14, 2024, Bitcoin reached an all-time high of $75,830 on a cryptocurrency exchange in Poland.

How to invest in Bitcoin

Overview of Bitcoin

Bitcoin, often denoted as BTC, is a digital or virtual currency. It is a decentralised form of currency, existing entirely online, that uses cryptography for security. Unlike traditional currencies, such as the dollar or euro, which are controlled by central banks, Bitcoin operates on a decentralised network of computers spread worldwide.

The current price of Bitcoin is around $58,948 as of August 13, 2024. In May 2016, you could buy one bitcoin for about $500.

At the heart of Bitcoin is a public ledger called a blockchain. This ledger contains every transaction processed, allowing the user's computer to verify the validity of each transaction. People known as miners use powerful computers to solve complex mathematical problems that validate each Bitcoin transaction. Once a problem is solved, a transaction is added to the blockchain, and a miner is rewarded with a small amount of Bitcoin.

Investing in Bitcoin

Benefits of Investing in Bitcoin

• High potential returns: Bitcoin and other crypto assets have shown a significantly higher potential for returns compared to traditional investments.
• Liquidity: Bitcoin trades occur 24/7 on various cryptocurrency exchanges, providing high liquidity and the ability to trade at any time.
• Future of currency: Many believe that digital currency is the future, and investing in Bitcoin now could yield significant returns as digital currencies become more widely adopted.
• Inflation hedge: With its supply capped at 21 million, Bitcoin could act as a hedge against fiat currency inflation.

Risks of Investing in Bitcoin

• Price volatility: Bitcoin is known for its price volatility, which could lead to significant losses.
• Lack of regulations: The crypto market is relatively new and lacks the regulatory framework of traditional financial markets.
• Digital threats: As a digital asset, Bitcoin is susceptible to hacking, technical glitches, and other cybersecurity threats.
• No guaranteed return: As with any investment, there is no guaranteed return. The value of Bitcoin depends highly on demand, and if demand falls, the value may plummet.

What You Need to Invest in Bitcoin

To begin investing in Bitcoin, you will need:

• A crypto wallet to store your Bitcoin holdings, such as a hardware or hot wallet.
• A suitable crypto exchange where you can safely and securely buy and sell Bitcoin. Examples include Coinbase, Binance, and Changelly.
• A payment method, such as bank transfers, credit card payments, or even other cryptocurrencies.
• Risk tolerance: Crypto investments are volatile assets, and it is important to understand your risk tolerance before investing.

Best Ways to Invest in Bitcoin

Direct Investment

• Purchasing Bitcoin: Buying and holding Bitcoin via exchanges and Bitcoin ATMs is the most direct method. It suits those comfortable with handling digital assets but involves risks related to price volatility and the security of digital wallets.
• Trading Bitcoin: This method involves buying and selling Bitcoin on exchanges and is suitable for those experienced in trading and understanding market trends.
• Dollar-Cost Averaging (DCA): This strategy involves investing a fixed amount into Bitcoin at regular intervals and is ideal for long-term investors looking to mitigate the impact of volatility.

Indirect Investment

• Bitcoin ETFs: Exchange-traded funds track Bitcoin's value, allowing investment without owning Bitcoin directly. They are convenient for traditional investors but may involve management fees and do not provide actual Bitcoin ownership.
• Bitcoin-Related Companies: This method involves investing in companies involved in the Bitcoin ecosystem and provides indirect exposure to Bitcoin's performance, along with the added risks of the individual company's performance.

Investing in Bitcoin requires careful consideration of its high volatility and risk. It is important to thoroughly understand the asset class and approach your investments strategically. While Bitcoin is a common entry point into the cryptocurrency market, it should only be a portion of your overall investment portfolio.

Frequently asked questions