Bitcoin's Future: Long-Term Investment Or Short-Lived Hype?

Bitcoin is a highly popular cryptocurrency, but is it a good long-term investment? This is a complex question with no clear answer. On the one hand, Bitcoin's soaring value, potential for high returns, and growing popularity make it attractive to investors. On the other hand, its price volatility, lack of regulation, and security concerns make it a risky bet for long-term financial goals like retirement. Ultimately, investing in Bitcoin requires careful consideration of one's risk tolerance, time horizon, and overall investment strategy.

Bitcoin's price volatility and risk

Bitcoins Price Volatility and Risk

Bitcoin is a highly volatile asset, and its value can fluctuate significantly over time. This volatility can be attributed to the speculative nature of the cryptocurrency market, where small events or comments from influential individuals can cause substantial price swings. For example, in 2022, Bitcoin prices correlated with the Nasdaq, and during that year, its value decreased from $20,000 to $7,051 in a matter of weeks. This volatility was also seen in April 2024 when Bitcoin's value dropped from an all-time high of $63,000 to around $32,000 per coin, before rebounding to $40,000 and then slumping again to around $37,000.

The volatile nature of Bitcoin and other cryptocurrencies was further highlighted by the 2021-2022 freefall, which affected even stablecoins pegged to the US dollar. This volatility and the lack of regulation in the market make Bitcoin a risky investment option.

However, some individuals believe in the potential of Bitcoin as a decentralised currency and store of value, and thus consider it a good long-term investment. Bitcoin has been around longer than other cryptocurrencies, and its price and market cap are much higher than other crypto investment options. Its finite supply and growing acceptance by businesses and governments contribute to its value.

Despite its volatility, Bitcoin has the potential to be a fantastic investment. Its decentralised nature and the fact that it is not tied to any central system, like a government, make it an attractive option for those looking to hedge against inflation and the potential collapse of the fiat-based economy. Additionally, its growing popularity and acceptance could lead to massive adoption in the future.

Due to its volatile nature, financial experts generally recommend investing in Bitcoin only if you are a tech-savvy investor dedicated to learning about the asset and able to ride out the ups and downs. It is crucial to have a solid financial plan in place, including emergency savings and retirement planning, before considering investing in Bitcoin. Experts advise investing only a small portion of your portfolio in high-risk assets like Bitcoin, typically around 5%.

To mitigate the impact of price volatility, investors can utilise strategies such as dollar-cost averaging, where small amounts of money are invested consistently instead of a lump sum. Additionally, safe storage of Bitcoin is essential, and cold wallets or hardware wallets that are not connected to the internet are considered the most secure option.

Bitcoin's advantages over stocks

Bitcoin is a decentralized, peer-to-peer, digital currency system. It has several advantages over stocks, which make it an attractive investment option.

Firstly, Bitcoin is immune to seizure, meaning that governments cannot freeze an individual's wealth. This gives users complete freedom to do as they wish with their money. Additionally, there is no risk of third-party interception, meaning transactions are secure and private.

Another advantage of Bitcoin is that there are no transaction costs. Users contribute to the network by keeping the Bitcoin client running, which shares the burden of authorizing transactions, thus reducing costs. This is in contrast to traditional stock trading, which often involves settlement fees and other charges.

Bitcoin also eliminates the risk of "charge-backs". Once Bitcoins are sent, the transaction cannot be reversed, and ownership can only be changed by the owner, making it a secure way to receive funds.

Furthermore, Bitcoin is a push system, meaning it is not subject to the same inflationary pressures as traditional currencies. The blockchain system is infinite, and Bitcoin undergoes predictable inflation at a halved rate every four years, reducing the risk of hyperinflation.

Finally, Bitcoin is permissionless, open-source, and censorship-resistant. It promotes democracy and provides anonymity, as users are not required to provide personal information or identification to use the currency.

While Bitcoin has these advantages, it is important to note that it is still a relatively new currency and comes with certain risks, including volatility and a lack of regulation. As such, it may be considered a more short-term investment, rather than a long-term one.

How to buy and store Bitcoin

Bitcoin is available from a multitude of centralized cryptocurrency exchanges. The safest exchanges are U.S.-based, which means you'll need to comply with the SEC's know-your-customer (KYC) guidelines. For tax purposes, you'll need to input your personal information, including your address and social security number.

• Open an account with a cryptocurrency exchange
• Connect a bank account and deposit funds into your exchange wallet
• Buy Bitcoin (BTC)
• Buy a wallet (optional)

There are several places where you can buy Bitcoin, including:

• Coinbase
• Uphold
• EToro
• WeBull
• Coinmama
• PrimeXBT
• Gemini
• Kraken
• Crypto.com

Once you've purchased your Bitcoin, you'll need to store it. Bitcoin can be stored in two kinds of digital wallets: a hot wallet or a cold wallet. With a hot wallet, transactions are generally faster, whereas a cold wallet often incorporates extra security steps that help to keep your assets safe but also make transactions take longer.

Hot wallets include:

• A trusted exchange or provider in the cloud
• Third-party hot wallet providers

Cold wallets include:

• A small, encrypted portable device
• Paper wallets
• USB drives
• Commercial non-custodial cold wallets

Bitcoin's appeal to younger investors

Bitcoin has become an increasingly popular investment option, but its long-term viability is uncertain. While it has been around longer than other cryptocurrencies, it is still relatively new, and its extreme price volatility makes it a risky investment.

Bitcoins Appeal to Younger Investors

Bitcoin and other cryptocurrencies have a broad appeal to younger investors, particularly those from Gen Z and Millenials. This is due to a few key factors:

• Technological fluency: Younger generations have grown up with the technology that cryptocurrencies rely on, such as the internet, smartphones, and computers. They are more adaptable to these advancements and are more likely to be comfortable with the concept of digital currencies.
• Distrust in traditional financial institutions: The younger generation has lived through financial recessions and economic difficulties, which has led to a lack of trust in traditional financial institutions. The decentralised nature of cryptocurrencies provides an appealing alternative to regulated, centralised institutions.
• Ease of access: Traditional investments often require a steep learning curve, with complex processes and high barriers to entry. In contrast, cryptocurrencies are more accessible, with lower starting capital requirements, less documentation, and 24/7 availability on mobile applications.
• Social media influence: The popularity of cryptocurrencies has been boosted by extensive social media campaigns and influential individuals promoting their use. This exposure can create a fear of missing out (FOMO) among those who might not have otherwise considered investing in crypto.
• Potential for high returns: Bitcoin's growth potential is a significant draw for younger investors seeking substantial returns. The promise of high returns and the allure of getting in on the ground floor of a new type of currency have fuelled the crypto market's expansion.

The combination of these factors has made Bitcoin and other cryptocurrencies an attractive investment option for younger generations, who are embracing the potential for financial freedom and are willing to take on the associated risks.

Bitcoin's regulatory issues

Bitcoin regulatory issues

Bitcoin has become an increasingly popular investment option, but it is not without its risks. One of the main concerns surrounding Bitcoin is its lack of regulation. The regulatory landscape for cryptocurrencies like Bitcoin is complex and constantly evolving. The decentralised nature of cryptocurrencies means they are not beholden to country borders or specific agencies within a government, which presents a challenge for policymakers.

Regulation is one of the key factors that affect Bitcoin's price. The cryptocurrency's rise in popularity has been halted by government interventions, such as China's crackdown on crypto businesses in 2019. On the other hand, regulatory "victories" can cause prices to surge, as seen in 2024 when Bitcoin Spot ETF approvals caused its price to climb over $73,000.

The classification of cryptocurrencies also varies among regulatory agencies. For example, in the US, the IRS treats cryptocurrency as property, while the CFTC considers it a commodity. This lack of consistent regulation makes it difficult for investors to know how to comply with the law and manage their investments effectively.

Another regulatory issue is the global portability of cryptocurrencies. The unique characteristics of cryptocurrencies, such as their ability to be traded across borders instantly, present a challenge for regulators, as they must now coordinate with international counterparts to effectively oversee the market.

The terminology used to describe the various activities, products, and stakeholders in the crypto space is also not globally harmonised, making it difficult for regulators to keep up with the rapidly evolving industry.

To address these regulatory issues, international agencies such as the International Monetary Fund (IMF) have called for increased international cooperation and discussion among regulators. The EU, for example, has implemented the Markets in Crypto Assets (MiCA) regulation, which defines cryptocurrency assets and sets out how they should be regulated within the bloc.

While some countries have taken a prohibitive approach to crypto assets, others have been more welcoming, creating a fragmented global response. This lack of coordination could lead to a "race to the bottom" as crypto businesses migrate to jurisdictions with the most favourable regulations.

Frequently asked questions