Bitcoin Investment: Is Now The Right Time?

Bitcoin is a fascinating asset. It is simultaneously a transactional tool and a speculative commodity, attracting investors almost since it first hit the market. However, it is also incredibly volatile. So, is now a good time to invest in Bitcoin?

Bitcoin's value has rallied over the last few quarters, increasing from about $26,000 in mid-September 2023 to an all-time high of around $73,000 in mid-March 2024. Since then, it has seen intermittent highs and lows, with its value as of August 2024 hovering around $50,000 to $60,000.

Some experts believe that now could be a good time to invest in Bitcoin, especially for those considering it as a long-term investment. However, others are more cautious due to the recent volatility and economic concerns.

Overall, the decision to invest in Bitcoin depends on your risk tolerance and investment strategy. It is essential to do your research, understand the risks, and only invest what you can afford to lose.

Bitcoin's value and demand

Supply and Demand

Bitcoin's price is influenced by basic economic principles of supply and demand. With a limited supply of 21 million bitcoins, the decreasing availability of new bitcoins over time contributes to its value. The protocol only allows new bitcoins to be rewarded at a fixed rate, which is designed to slow down over time. This scarcity creates a sense of exclusivity and increases demand, pushing prices higher.

Media Coverage and Investor Sentiment

Media coverage and investor sentiment also play a significant role in Bitcoin's value. Increased media attention, especially from investing experts and business owners, can fuel demand and influence public perception. Positive media coverage tends to send Bitcoin's price up, while negative news can lead to a decrease in value. Investor sentiment, driven by fear of missing out or expectations of high returns, can also impact its price.

Competition from Other Cryptocurrencies

The rise of alternative cryptocurrencies, such as Ethereum, Tether, and Solana, has impacted Bitcoin's dominance in the market. Investors now have a wider range of options to choose from, and the emergence of competitive cryptocurrencies can affect Bitcoin's demand and price.

Regulations

Bitcoin's value is also responsive to regulatory developments. While the lack of central regulation allows for its cross-border capabilities and freedom from government-imposed controls, changes in policies and legal requirements can impact its demand and supply. For example, India's decision to bring crypto-related transactions under the Money Laundering Act may have a damaging effect on the industry.

Volatility

Bitcoin is known for its volatile nature, with its value fluctuating over time. This volatility is driven by various factors, including supply and demand, media coverage, regulatory changes, and competition. Investors should be cautious and aware of the risks associated with investing in Bitcoin, as its value can experience significant swings.

Supply of Bitcoin

Bitcoin is a decentralised cryptocurrency with a limited supply. It has a hard-capped limit of 21,000,000 coins that can ever be mined. As of 15 August 2024, 19.74 million Bitcoins are in circulation, representing a 1.44% increase in the supply from the previous year.

Bitcoin's finite supply is a critical factor in determining its value. The decreasing number of Bitcoins left to be mined, known as its disinflationary nature, increases the cryptocurrency's scarcity, which can influence its price trajectory as demand pressures grow.

Bitcoin's inflation rate has also been decreasing due to its halving events, which occur approximately every four years and result in a 50% reduction in the rewards to miners. The halving events contribute to Bitcoin's deflationary tendency and help to reduce its supply, further supporting price increases.

The limited supply of Bitcoin and its decreasing inflation rate make it an attractive investment option for those seeking a hedge against traditional fiat currency inflation.

Bitcoin's cryptocurrency market share

Bitcoin's market dominance is a metric used to measure its relative market share in the overall cryptocurrency market. It represents the percentage of Bitcoin's total market capitalization compared to the total market capitalization of all cryptocurrencies combined. As the first cryptocurrency, Bitcoin has remained the largest by market cap, which is why its dominance in the market is a number that many people follow.

Bitcoin's market dominance has historically been over 50%. As of August 2024, Bitcoin's market dominance was 55.64%, an increase of 0.26% over the day. In April 2023, Bitcoin's market dominance was 53.8%. In 2021, when the cryptocurrency market topped $2 trillion for the first time, Bitcoin accounted for over 50% of the entire market capitalization.

Bitcoin's market share is important for several reasons. Firstly, it serves as a market direction indicator. When Bitcoin's market dominance is high, it suggests that investors are more confident in Bitcoin relative to other cryptocurrencies. Conversely, when its market dominance is low, it could mean that investors are more willing to take risks on other, potentially higher-reward cryptocurrencies.

Secondly, Bitcoin's market share is important for asset diversification. Investors can use Bitcoin's dominance to guide decisions about diversifying their portfolios. A high market dominance might encourage investors to diversify into other cryptocurrencies to reduce risk, whereas a low market dominance could be seen as an opportunity to invest in Bitcoin.

Thirdly, Bitcoin's market dominance is a marker of the market's maturity. As the first cryptocurrency, Bitcoin initially dominated the market. However, as the market has matured, many other crypto assets have been developed with unique features and use cases. Therefore, a decline in Bitcoin dominance over time can indicate that the cryptocurrency market is becoming more mature and diverse.

Finally, Bitcoin's market share is relevant for trading strategies. Traders often look at Bitcoin's dominance to decide whether to invest in Bitcoin or alternative coins (all other cryptocurrencies). When Bitcoin's dominance is increasing, traders might move their assets into Bitcoin, expecting it to outperform other coins. On the other hand, if Bitcoin's dominance is decreasing, traders might shift their assets into alternative coins, anticipating higher returns.

While Bitcoin's market dominance provides insights, it is not a definitive guide to investment strategy or market health. The cryptocurrency market is influenced by numerous complex factors, and Bitcoin's dominance is just one part of the overall picture.

Government legislation

The regulatory stance of governments around the world on cryptocurrencies like Bitcoin is a key factor that influences its price and, consequently, the optimal time to invest in it. The rise in popularity of Bitcoin has been arrested every time a government has cracked the policy whip, and countries have taken varying approaches to Bitcoin regulation. For instance, in November 2019, China accelerated a crackdown on cryptocurrency businesses, causing Bitcoin to sink. On the other hand, regulatory "victories" have led to price surges. For example, in January 2024, Bitcoin Spot ETF approvals caused its price to climb over the following months to more than $73,000.

The regulatory landscape for Bitcoin varies across the world. In the United States, the Internal Revenue Service (IRS) treats cryptocurrency as property for taxation purposes, while the Commodity Futures Trading Commission (CFTC) considers it a commodity. In the absence of federal legislation, individual states have introduced bills to their state senates, primarily dealing with the acceptable use of blockchain ledgers and smart contracts.

Europe has emerged as the cryptocurrency capital, with blockchain fitting neatly into the new regulations demanding transparency of information and shared data between markets and institutions. Switzerland has embraced a non-regulatory approach, with the Swiss Federal Council stating that there is no need to regulate cryptocurrency currently. Meanwhile, Germany considers Bitcoin a "unit of account", allowing its citizens to trade it freely, but it is also taxable and incurs VAT when traded with Euros.

Asian countries have taken contrasting stances on Bitcoin, ranging from acceptance to apprehension. Japan is arguably the most cryptocurrency-positive country, recognizing Bitcoin as a "legal means of payment". This has led to many companies integrating Bitcoin payments into their services. On the other hand, some Asian countries like Bangladesh, Nepal, and Kyrgyzstan have taken a harsh stance, with using or trading virtual currencies being illegal and punishable.

Australia has struck a balance by labelling Bitcoin as "money", allowing for taxation on trades, and building special boundaries to guide the country's ICO sector.

Overall, the world's governments have indicated that they are largely open to allowing the cryptocurrency revolution to occur, with a collective strategy of watching patiently on the sidelines. However, the unique characteristics and global portability of cryptocurrencies present a challenge for regulators, especially regarding the different types of tokens being traded on exchanges.

Public interest and media coverage

More recently, in January 2024, a hacker posted a false statement on Twitter (now X) claiming that the US Securities and Exchange Commission (SEC) had approved several Bitcoin spot ETFs. This caused Bitcoin's price to briefly spike to US$48,000 before dropping back down to around US$46,000 when the SEC confirmed the hack.

Public interest in Bitcoin is also fuelled by influential individuals and companies investing in or commenting on the cryptocurrency. For example, Tesla's purchase of Bitcoin in early 2021 and SpaceX's sale of its Bitcoin holdings in early 2023 both impacted its price. Additionally, predictions and comments from experts and analysts can sway public opinion and influence investment decisions. For instance, crypto specialist Manish Chhetri's bearish outlook on Bitcoin in 2024 may have contributed to a potential decline in its value.

Media coverage of regulatory changes and geopolitical events also impact public interest and Bitcoin's value. China's ban on cryptocurrency in 2021 caused a sharp drop in Bitcoin's price, and the US's progress towards crypto legislation in 2024 has been closely watched by investors. Economic conditions, such as interest rates, inflation, and geopolitical conflicts, are also essential factors that influence public interest and media coverage of Bitcoin.

Overall, public interest and media coverage are crucial factors that can significantly impact Bitcoin's value. Positive media coverage and public sentiment can drive up demand and price, while negative news and sentiment can lead to price declines.

Frequently asked questions