The Bitcoin Investment Journey: A Billion-Dollar Adventure

Bitcoin is a cryptocurrency, or digital currency, that is not backed by any government. Its value is highly volatile and prone to sharp and sudden drops. On April 10, 2024, one bitcoin was worth more than $70,000, with a total value of over $1.39 trillion. This value is a stark contrast to its price and market cap a year prior, when there were about 19.35 million bitcoins circulating with a $472 billion market cap.

Bitcoin's volatile nature

Bitcoin is well-known for its volatile nature, and its price fluctuates for many reasons. As a cryptocurrency, it is decentralised, meaning there is no central authority or bank with the power to intervene in the market. This lack of a central bank means that no institution can step in to support or influence the market and artificially subdue volatility.

Bitcoin's limited supply also contributes to its volatile nature. With a maximum threshold of 21 million, there are currently 18.7 million Bitcoins in circulation. As the supply nears its limit, prices are likely to climb. The cryptocurrency's value is also influenced by how many coins are in circulation and how much people are willing to pay.

Media outlets, influencers, and industry moguls can also influence Bitcoin's price. Investor concerns are created by the media, leading to price fluctuations. For example, in 2021, news of China's crackdown on banks completing crypto transactions, along with Tesla's decision to no longer accept Bitcoin as payment, drove a sell-off among digital currencies.

Additionally, Bitcoin is still a relatively new asset class, and its value is in the price discovery phase. As investors, users, and governments continue to work through the initial growing pains and concerns, prices will remain volatile.

Other factors that influence Bitcoin's volatility include Google Trends, total circulation, US consumer confidence, and the S&P500 index.

How much money is in the world?

It is challenging to determine the exact amount of money in the world, as it exists in various forms, including physical cash, virtual currencies, investments, and derivatives. However, here is an overview of the global money supply and its different components:

Physical Cash and Coins:

According to the Bank for International Settlements, the total value of physical notes and coins in circulation across 20 major countries plus the euro area was estimated to be $8.28 trillion in 2021. As of January 2023, the global amount of physical cash (M0) is estimated to be $11.4 trillion.

M1 Money Supply:

M1 includes all physical cash and coins (M0) plus money in travellers' checks, demand deposits, and other easily accessible accounts. The global M1 supply was valued at $48.9 trillion as of November 28, 2022.

M2 Money Supply:

M2 is a broader category that includes all of M1 plus mutual funds, smaller time deposits, money market securities, and other less liquid assets. The total value of the M2 supply was estimated to be $82.6 trillion.

M3 Money Supply:

M3 is the broadest category, encompassing all of M2 plus institutional money market funds and large time deposits. The M3 category is no longer calculated by the US Federal Reserve, but it represents the least liquid assets.

Investments and Derivatives:

The total market capitalization of the New York Stock Exchange and Nasdaq was valued at $48.97 trillion as of December 2023.

Cryptocurrencies:

The current market capitalization of cryptocurrencies is estimated to be $2.43 trillion as of March 22, 2024.

Global Wealth:

According to the UBS "Global Wealth Report 2023," the world's total net private wealth stood at $454.4 trillion at the end of 2022.

In summary, the global money supply is vast and diverse, with various forms of money and assets contributing to its overall value. The specific definitions and classifications of money, such as M1, M2, and M3, help provide a framework for understanding the different components of the global money supply.

How much is Bitcoin worth?

As of August 2024, the price of Bitcoin is around $58,000 to $60,000 per BTC. The price of Bitcoin is constantly changing because the crypto market is active 24 hours a day, 7 days a week.

Bitcoin's price is renowned for being highly volatile. When it was launched in January 2009, its price was $0.00. In February 2011, BTC’s price reached parity with the US dollar for the first time, and over the next four months, bitcoin’s price continued to rise – peaking at over $30. By early 2013, the leading cryptocurrency had risen above $1,000, but after the Mt Gox hack and China's crypto ban, it took four years for the BTC price to return to this level. In 2017, BTC peaked at its previous all-time high of $19,850. Over 2018, the entire crypto market plunged into a year-long bear market, now known as the "crypto winter". In December 2020, Bitcoin returned to test the previous all-time high and eventually rose a further 239% over the next 119 days to a new all-time high of $64,799.

Bitcoin is the world's first decentralised cryptocurrency. It was founded by an anonymous computer programmer or group of programmers under the pseudonym "Satoshi Nakamoto". It is a peer-to-peer electronic payment system that uses a cryptocurrency to transfer value over the internet or act as a store of value. Bitcoin is currently the world's biggest cryptocurrency and has maintained market dominance for the past decade.

How to buy Bitcoin

Step 1: Choose a Crypto-Trading Service or Venue

You can purchase bitcoin from cryptocurrency exchanges, traditional stockbrokers, peer-to-peer money transfer apps, Bitcoin ATMs, or Bitcoin exchange-traded funds (ETFs).

Cryptocurrency exchanges where you can purchase bitcoin include Gemini, Kraken, Coinbase, and Crypto.com. Traditional brokers that offer access to Bitcoin include Robinhood, Webull, TradeStation, and Fidelity.

Step 2: Connect Your Exchange to a Payment Option

At most exchanges, you can connect your bank account directly or link it to a debit or credit card. Although you can use a credit card to purchase Bitcoin, cryptocurrency price volatility, combined with a credit card's interest charges, could inflate the overall cost of your purchase.

Step 3: Place an Order

Almost all crypto exchanges offer market and limit orders, and some also provide stop-loss orders. You can also set up recurring investments, allowing you to dollar-cost average into your investments of choice.

Step 4: Safe Storage

It is important to store your Bitcoin in a secure location. You can use a hot wallet or a cold wallet. With a hot wallet, transactions are generally faster, but they are more susceptible to hacking. Cold wallets are not connected to the internet and are considered much more secure, but they require technical knowledge to set up.

Bitcoin's safety and security

Bitcoins Safety and Security

Bitcoin is a relatively new and experimental currency that is still in active development. As such, it is important to be aware of the risks involved in investing in Bitcoin and to take steps to secure your investment.

One of the biggest risks associated with Bitcoin is market risk. The price of Bitcoin can be extremely volatile and subject to steep declines over a short period of time. For example, in 2022, the price of Bitcoin dropped from almost $48,000 to lows of around $16,000. This kind of volatility can make Bitcoin feel unsafe to new investors. It is generally recommended that investors only consider investing capital they are willing to lose and keep their exposure to Bitcoin to a minimum.

Another risk to consider is the regulatory environment surrounding Bitcoin. Currently, there is no overarching regulatory framework for Bitcoin, and uncertainty is an investor's worst enemy. In 2021, China effectively made it illegal for citizens to mine or hold any cryptocurrency. If other countries follow suit, Bitcoin investors could face significant losses.

Cybersecurity is also a major concern for Bitcoin investors. As the value of Bitcoin has increased, so too has the number of cyber attacks and viruses designed to steal Bitcoin from wallets. It is important to take steps to secure your Bitcoin wallet and protect your privacy. This includes using two-factor authentication, antimalware software, and complex passwords.

It is also important to research any cryptocurrency service or software you plan to use to avoid being scammed or overcharged. Additionally, regular backups of your Bitcoin wallet are essential to protect against computer failure, theft, and human error.

Finally, it is worth noting that Bitcoin is not an official currency and is not SIPC or FDIC insured. This means that if the firm holding your Bitcoin investments fails, you may not be able to recover your losses.

Overall, while Bitcoin can be a speculative and risky investment, there are steps you can take to mitigate some of the risks and improve the security of your investment.

Frequently asked questions