Bitcoin Investment: Late To The Party Or Still Profitable?

Bitcoin has been described as a risky but rewarding investment. Its value has seen significant highs and lows since its inception in 2009, sparking much debate about the future of finance and money. Some people believe that it is too late to make a profit from investing in Bitcoin, while others argue that it is still a good investment opportunity. There are several factors to consider when deciding whether or not to invest in Bitcoin, including risk tolerance, investment horizon, understanding of cryptocurrency, and diversification.

Bitcoin's value as a long-term investment

Bitcoin is a decentralised digital currency, free from the control of governments or financial institutions. It is more resistant to wild inflation and corrupt banks, and users can be their own bank.

Bitcoin's value has seen significant highs and lows since its inception, and it has sparked much debate about the future of finance and money. Despite the uncertainty and volatility, Bitcoin has spawned a global movement and inspired the creation of thousands of other cryptocurrencies.

Bitcoin's value has increased dramatically over the years, with its first major peak in April 2013, when it reached a value of approximately $260 before a significant crash to around $50. In December 2017, Bitcoin's price skyrocketed, reaching nearly $20,000. In November 2021, Bitcoin reached an all-time high of over $65,000.

Bitcoin's recent 118% year-over-year surge includes an 82% increase in just four months, capturing investor attention and raising the question of whether it is too late to invest.

Some factors to consider when deciding whether to invest in Bitcoin are risk tolerance, investment horizon, understanding of cryptocurrency, diversification, regulatory risks, and alternatives.

Bitcoin is known for its volatility, and investors need to be comfortable with large swings in the value of their investments. It is also important to consider the investment horizon, as cryptocurrency investments tend to be better suited for long-term investment horizons.

The upcoming "halving" event, where the rewards issued to miners are cut in half, has historically led to significant price increases, making it a potential investment hotspot. Even if investors buy Bitcoin at its peak prices, historical growth trends could still yield market-beating returns over the long term.

Bitcoin's track record post-halving events is impressive, with prices tending to soar after each event. The effect isn't immediate, with a lag of roughly 18 months from each halving event to the next price peak, but the long-term upward trend has been consistent.

With growing mainstream adoption and an increasing presence in the portfolios of institutional investors, Bitcoin's market maturity is advancing. The easy access to Bitcoin-based exchange-traded funds allows many investors to make direct investments in Bitcoin's price through their existing stock-trading accounts.

As with any investment, diversification is essential. Bitcoin may offer the potential for high returns, but it comes with its own set of risks and volatility. Investors should weigh these risks against their appetite for volatility and their conviction in cryptocurrency's long-term future.

While it is impossible to predict the future of Bitcoin's value with certainty, its long-term upward trend and the upcoming halving event make it a potential investment opportunity. However, investors should carefully consider their risk tolerance and investment goals before deciding whether to invest in Bitcoin.

Bitcoin's performance history

Bitcoin's price slowly climbed through 2016, ending the year at over $900. In 2017, it broke $2,000 in mid-May and then skyrocketed to close at $19,188 on 16 December.

In 2018 and 2019, Bitcoin's price moved sideways, with small bursts of activity. In June 2019, for example, the price surpassed $10,000, but it fell to a closing price of $6,612 by mid-December.

In 2020, the economic shutdown due to the COVID-19 pandemic caused Bitcoin's price to surge. The cryptocurrency opened the year at $7,161 and closed at $28,993 on 31 December, increasing 416% from the start of that year.

Bitcoin's price continued to surge in 2021, surpassing $40,000 by 7 January. By mid-April, Bitcoin prices reached new all-time highs of over $60,000, and it peaked at $64,895 on 14 April. However, by the summer, prices had dropped by 50%, closing at $30,829 on 19 July.

In November 2021, Bitcoin reached an all-time high of $69,000 before closing at $64,921. In mid-December 2021, Bitcoin fell to a close of $46,211. Between January and May 2022, Bitcoin's price continued to decline, falling to $20,000 by the end of the year.

In 2023, Bitcoin's price rose consistently, starting the year at $16,530 and ending at $42,258. In January 2024, the SEC was forced by courts to review its denial of certain Bitcoin-related investment products, and Bitcoin's price climbed quickly, breaching $60,000 again in late February and early March. On 14 March, Bitcoin reached an all-time high of $75,830.

Overall, Bitcoin's price changes generally reflect investor enthusiasm, demand, and supply. It was designed to be used as a currency in daily transactions, but it has become far more than a payment method, with investors turning to Bitcoin as a way to store value, generate wealth, and hedge against inflation.

Bitcoin's future potential

Continued Growth and Mainstream Adoption:

Bitcoin has seen significant growth and increased mainstream adoption in recent years. This trend is expected to continue, with some analysts predicting that Bitcoin will reach a price of $250,000 by the middle of 2023. The upcoming "halving" event, where rewards for miners are cut in half, has historically led to significant price increases, making Bitcoin an attractive investment prospect. The increasing presence of Bitcoin in the portfolios of institutional investors and the emergence of Bitcoin-based exchange-traded funds also contribute to its potential for continued growth.

Limited Supply and Scarcity:

A defining feature of Bitcoin is its limited supply, with a maximum of 21 million bitcoins ever to be created. This scarcity, built into the system by its creator Satoshi Nakamoto, is expected to drive up the price over time as demand increases. Bitcoin's decentralised nature, free from government or financial institution control, also makes it resistant to wild inflation and corrupt banks, further enhancing its potential for sustained growth.

Volatility and Regulatory Risks:

On the other hand, Bitcoin is known for its volatility, and its value has seen significant highs and lows since its inception. Regulatory and legal landscapes for cryptocurrencies are still evolving and can vary across countries, posing potential risks to the value of Bitcoin. Additionally, the belief that "everything is overvalued" and that a credit unwind is inevitable could lead to a market crash, affecting Bitcoin's value.

Long-Term Investment Potential:

Despite the short-term volatility, many believe that Bitcoin is a solid long-term investment. Its historical growth trends suggest that even buying at peak prices can yield market-beating returns over time. Bitcoin has been compared to digital gold, serving as a store of value and a hedge against inflation. Its decentralised nature and limited supply make it an attractive alternative to traditional currencies, especially in an era of increasing digital transactions.

Diversification and Alternative Cryptocurrencies:

It is essential to consider diversification when investing in Bitcoin. Putting all your eggs in one basket is never a good idea, and there are other cryptocurrencies that offer better growth appreciation, such as small-cap altcoins. Additionally, it is crucial to understand the risks associated with Bitcoin, have a long-term investment horizon, and be comfortable with the volatility of the investment.

In conclusion, while no one can predict the future with certainty, Bitcoin's future potential remains promising. Its limited supply, increasing mainstream adoption, and historical growth trends suggest that it may continue to be a profitable investment. However, it is essential to approach any investment in Bitcoin with caution, considering the risks and one's risk tolerance, investment horizon, and understanding of cryptocurrencies.

Bitcoin's value compared to other cryptocurrencies

Bitcoin's value has been on a rollercoaster since its inception in 2009. It was basically worthless in traditional currency terms until the first known Bitcoin transaction in May 2010 when 10,000 BTC were traded for two pizzas, worth about $25. In February 2011, Bitcoin achieved parity with the US dollar, making 1 BTC equal to $1.

Bitcoin's value has seen significant highs and lows, sparking much debate about the future of finance and money. Despite the uncertainty and volatility, Bitcoin has a dominant market share of 55.8% and has inspired the creation of thousands of other cryptocurrencies.

Bitcoin's value is influenced by its restricted supply and increasing demand. It has a limited supply of 21 million bitcoins, in contrast to other cryptocurrencies such as Litecoin and Ripple, which have expanded maximum supplies of 84 million and 100 billion, respectively. Bitcoin is also more divisible than fiat currencies, with one bitcoin divisible into up to eight decimal places, known as satoshis.

Bitcoin's value is also influenced by its acceptability, portability, durability, and uniformity. More people are becoming familiar with cryptocurrencies, and citizens of many countries are adopting them due to failing financial systems. Businesses are also increasingly accepting Bitcoin, and more consumers are using it. Additionally, Bitcoin can be used across borders, allowing consumers with an internet connection to participate in the global economy and access financial services. As a digital asset, Bitcoin can last as long as there is digital space to store it, and it cannot be counterfeited.

While Bitcoin remains the market leader, other cryptocurrencies could challenge its dominance in the future due to rising demand, expanded applications, and technological advances. For example, Bitcoin Cash was created as an offshoot of Bitcoin to address the slowdown in transaction speeds and the network's inability to reach consensus on proposed upgrades. It has a maximum block size of 8MB compared to 1MB for Bitcoin, enabling it to process more transactions per second.

In summary, Bitcoin's value compared to other cryptocurrencies lies in its restricted supply, increasing demand, acceptability, portability, durability, and uniformity. However, other cryptocurrencies are continuously evolving and improving, which could impact their market value and challenge Bitcoin's dominance in the future.

Bitcoin's value compared to traditional currencies

Bitcoin's value is derived from its decentralised nature, which means no central authority controls it. This is in contrast to traditional currencies, which are centralised and backed by governments or banks. Bitcoin's value is influenced by supply and demand, and its restricted supply and increasing demand contribute to its high value. Its value also lies in the fact that it can function as a store of value and a unit of exchange.

Bitcoin has six key attributes that enable its use in an economy:

• Scarcity: It is not a widely available resource.
• Divisibility: It has many denominations.
• Acceptability: More people and businesses are accepting and adopting it.
• Portability: It can be easily carried and exchanged across borders.
• Durability: It can last as long as there is digital space to store it.
• Uniformity: Bitcoins cannot be counterfeited.

Compared to traditional currencies, Bitcoin offers greater control over finances and privacy, lower fees, and more cost-efficient transactions. It also provides greater accessibility, as anyone with an internet connection can participate in the global economy and access financial services. Additionally, Bitcoin is more resistant to wild inflation and corrupt banks.

However, Bitcoin also has drawbacks compared to traditional currencies. It is subject to extreme price volatility, a complex user experience, and susceptibility to online theft and loss. It also lacks the backing, price stability, and protections offered by fiat currencies.

In conclusion, Bitcoin's value compared to traditional currencies lies in its decentralised nature, its ability to function as a store of value and unit of exchange, its key attributes enabling its use in an economy, and the advantages it offers in terms of control, privacy, fees, accessibility, and resistance to inflation and corruption. However, it also comes with certain risks and complexities that users should consider.

Frequently asked questions