Bitcoin's Meteoric Rise: Unlocking Life-Changing Wealth

Bitcoin is a highly volatile and speculative cryptocurrency. Its value has fluctuated significantly over time, reaching an all-time high of nearly $69,000 in November 2021 before dropping to less than a third of that value in November 2022. As of February 2024, the price of a token topped $52,000. Given these price swings, how much wealth one could accumulate by investing in Bitcoin depends on several factors, including the amount invested, the timing of the investment, and the length of time the investment is held.

Bitcoin's value over time

Bitcoin's value has fluctuated significantly since its launch in 2009.

Bitcoin's price jumped from $0.10 to $0.20 on 26 October 2010, reaching $0.30 by the end of the year. In 2011, it started growing past $1, reaching a peak of $29.60 on 8 June 2011, before a sharp recession in cryptocurrency markets saw its price drop to around $5 by the end of the year.

Bitcoin's price continued to fluctuate between $200 and $1,000 from 2012 to 2016, with a particularly notable crash in 2014 following a security breach at the Mt. Gox exchange. In 2017, Bitcoin's price rose dramatically, ending the year at around $29,000.

Bitcoin's price moved sideways in 2018 and 2019, with small bursts of activity. In 2020, the economic shutdown due to the COVID-19 pandemic caused Bitcoin's price to surge once again, ending the year at $28,993 – a 416% increase from the start of the year.

In 2021, Bitcoin's price surpassed $60,000 as Coinbase, a cryptocurrency exchange, went public. However, prices were down by 50% by the summer, closing at $30,829 on 19 July. In November 2021, Bitcoin again reached an all-time high of $69,000 before closing at $64,921.

Between January and May 2022, Bitcoin's price continued to gradually decline, falling below $20,000 by the end of the year.

In 2023, Bitcoin's price rose consistently, ending the year at $42,258.

As of August 2024, Bitcoin's price has again reached an all-time high, exceeding $73,000 in March, with a market capitalisation of $1.44 trillion.

How much Bitcoin to buy

Bitcoin is a decentralised digital currency that operates without the oversight of banks and governments. It is the world's first cryptocurrency, based on distributed ledger technology (blockchain). Bitcoin is open to, and controlled by, thousands of individuals around the world who are financially incentivised to maintain the security and validity of the network.

Bitcoin has seen huge growth in recent years. In May 2016, 1 BTC was worth about $500. As of August 2024, 1 BTC is worth around $58,000-$64,000. That's a growth of approximately 7,900%.

Due to its high value, you can buy less than 1 BTC. The minimum order size varies depending on the platform you use, but it can be as little as $10, $30, or $50.

Experts generally agree that cryptocurrencies shouldn't make up more than 5% of your portfolio. Bitcoin is a highly volatile asset, so it's important to be cautious when investing.

How long to hold Bitcoin

There are a variety of ways to get rich off of Bitcoin, and the time it takes varies depending on the method. Here is a detailed look at some of the most popular methods, including how long you may need to hold Bitcoin to achieve success.

HODLing

HODLing, which stands for "holding on for dear life", is a long-term investment strategy. This method involves buying Bitcoin and holding onto it for months or years, riding out the short-term price fluctuations and aiming for long-term price appreciation. History has shown that this is a safer and more reliable way to profit from Bitcoin, as short-term trading often results in losses. By holding Bitcoin for the long term, you reduce the risk of losing value and benefit from steady price increases.

Day Trading

Day trading is a short-term strategy where traders buy and sell Bitcoin throughout the day to make regular, small gains. Day traders try to speculate on the rise or fall of Bitcoin's price within short time frames, such as hours or minutes. This method requires access to a large amount of capital to achieve significant returns, and it carries a high level of risk.

Presales

Investing in presales involves buying newly launched crypto tokens at discounted prices during the early stages of a blockchain project. This strategy requires comprehensive research to identify promising projects. The upside potential of presales is higher compared to the more restricted day trading margins.

Staking and Interest

Staking and interest accounts are ideal for earning yield during a bear market. Investors can choose between fixed or flexible terms, with the latter allowing for the withdrawal of cryptocurrencies at any time, albeit with a lower interest rate. To maximize interest rates, investors can opt for fixed terms ranging from 30 days to a year.

Crypto Yield Farming and Lending

Crypto yield farming is a form of lending that offers a variable rate of interest. Investors choose a platform, loan their cryptocurrencies to the exchange, and fund a liquidity pool for traders to buy and sell without intermediaries. The interest earned is typically determined by the amount of trading fees collected.

In summary, the time it takes to get rich off Bitcoin depends on the chosen strategy. HODLing and presales are long-term strategies, while day trading, staking and interest, and crypto yield farming and lending can potentially provide shorter-term gains. It's important to remember that investing in Bitcoin carries inherent risks, and there are no historical averages or ratios to rely on as baselines for value.

Bitcoin's volatility

Bitcoin is considered a volatile financial asset. Volatility is a measure of how much the price of an asset varies over time. The volatility of Bitcoin is measured by how much its price fluctuates relative to the average price in a given period.

Despite its volatility, some analysts believe that Bitcoin is a superior long-term investment option. They argue that the volatility of Bitcoin creates liquidity and drives superior asset performance and durability.

Taxes on Bitcoin profits

The IRS classifies Bitcoin and other cryptocurrencies as property, and transactions involving them are taxable by law. As such, any profits or income from your cryptocurrency are taxable. However, the tax treatment depends on the circumstances in which you acquired and used your cryptocurrency, your income, and your tax status.

If you hold a cryptocurrency, sell it, and profit, you owe capital gains tax on that profit, just as you would on a share of stock. The tax rate depends on how long you held the Bitcoin before selling it. If you owned your Bitcoin for one year or less before selling it, you’ll face higher tax rates — between 10% and 37%. If you owned Bitcoin for more than a year, your rates will be lower, between 0% and 20%.

If you use Bitcoin to purchase goods or services, you owe taxes on the increased value between the price you paid for the crypto and its value at the time you spent it, plus any other taxes you might trigger. For example, if you purchased one Bitcoin for $3,000 and then used the same coin, now worth $50,000, to buy a car, you would have to report a capital gain of $47,000.

If you accept Bitcoin as payment for goods or services, you must report it as business income. If you are a Bitcoin miner, the value of your Bitcoin at the time it was mined counts as income. If your mining is part of a business enterprise, you can deduct the expenses that went into your mining operations, such as mining hardware and electricity.

If you exchange Bitcoin for another cryptocurrency, you will need to report any gains or losses. The fair market value of the cryptocurrency at the time of the trade determines its taxable value.

If you gain any income from Bitcoin through staking, lending, or selling, you may owe taxes on the proceeds. The entire value of the cryptocurrency on the day you receive it is taxable at your marginal income tax rate.

If you sell Bitcoin for less than you bought it for, the amount of the loss can offset the profit from other sales. You can write off Bitcoin losses, with the maximum amount you can write off in one year being $3,000.

Frequently asked questions