Small Bitcoin Investments: Worth The Risk?

Bitcoin is a decentralised digital currency, which means it is not issued or managed by any central authority such as a government, company or bank. This makes it more resistant to wild inflation and corrupt banks. With Bitcoin, you can be your own bank.

If you are looking to invest in Bitcoin, it is important to note that there is a steep learning curve and some other costs that must be considered. Transaction fees typically cost $0.50 to $5 to send Bitcoin to your wallet. There are also extra fees incurred when buying Bitcoin on exchanges. Additionally, the learning curve to understanding how to store Bitcoin securely is quite steep and often involves buying a hardware wallet, which can cost over $100.

If you are new to Bitcoin, it is recommended to start with a small amount to learn about it and how to use it without worrying about making mistakes and losing a lot of money. $10 is the smallest amount of capital you can use to buy Bitcoin and can be a great first step to learning about Bitcoin and how to use it. However, if you are only treating Bitcoin as an investment, then it probably does not make sense to buy just $10 worth as your potential profits will be lower.

If you plan to buy Bitcoin solely as an investment, it is recommended to invest a larger amount or a certain amount regularly through a method called Dollar Cost Averaging (DCA).

Bitcoin as an educational tool

Bitcoin is a new form of money that is controlled by no one and is developed as an open collaborative project. It is a digital currency that operates similarly to cash in that it is decentralized. This means that transactions carried out with Bitcoin do not require assistance from a financial institution. Bitcoin is one of many digital currencies disrupting the financial world.

Bitcoin can be a great educational tool for people who are new to the world of cryptocurrency and want to learn about it and use it. Buying a small amount of Bitcoin, such as $10 worth, can be a great first step to learning about Bitcoin and how to use it. By starting with a small amount, you can get familiar with how Bitcoin works without worrying about making costly mistakes. Once you are comfortable with Bitcoin, you can always buy more.

There are many educational resources available to learn about Bitcoin, including books, online courses, discussion forums, video presentations, podcasts, and blogs. These resources can help you understand the broader concepts and technical details of Bitcoin, such as blockchain technology, mining, wallets, and transaction fees.

Bitcoin is still in its early stages of user adoption, and it can be a good idea to get some to learn about it and use it, especially if you believe in its potential for a rise in popularity and price. However, if your sole purpose for buying Bitcoin is as an investment, then buying a small amount like $10 worth may not make sense due to the associated costs and the steep learning curve.

Overall, Bitcoin can be a valuable educational tool for those who want to understand the basics of cryptocurrency and how it works. It can provide an opportunity to learn and experiment with a small amount before diving deeper into the world of Bitcoin and other cryptocurrencies.

Bitcoin as a long-term investment

Bitcoin is a highly volatile and risky investment option due to its price volatility and lack of regulation. However, some individuals believe in its potential as a decentralized currency and store of value, making it a good long-term investment.

Bitcoin has matured and now offers significant long-term value. Government and institutional interventions have addressed many of the risks associated with the digital currency, and it is now as safe as owning bonds and commodities like gold. The limited supply of Bitcoin, coupled with increasing demand, makes it a valuable asset.

While the days of turning $10 into $10,000 by investing in Bitcoin are likely over, starting with a small amount can be a great way to learn about Bitcoin and how to use it safely. You can always invest more once you are comfortable and have a better understanding of the market.

If you are considering investing in Bitcoin, it is important to do your research and understand the market. Keep in mind that there are transaction fees, identity verification, and the potential for hacking, which can impact your investment.

Bitcoin's historical performance

Bitcoin is the world's first decentralised cryptocurrency, launched in January 2009 by the anonymous programmer or group of programmers known as '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 like gold and silver.

Bitcoin's price is renowned for its high volatility, but despite this, it has become the top-performing asset of any class over the past decade. Between 2010 and 2020, it climbed a staggering 9,000,000%. In February 2011, BTC's price reached parity with the US dollar for the first time, and over the next four months, its price continued to rise, peaking at over $30. By early 2013, it had risen above $1,000, but due to the infamous Mt Gox hack and China's announcement of its first ban on crypto, it took another four years for the BTC price to return to this level. In 2017, bitcoin's price continued to surge dramatically until it peaked at its then all-time high of $19,850.

In 2018, the entire crypto market plunged into what is now known as the 'crypto winter' – a year-long bear market. It wasn't until December 2020 that bitcoin returned to test the previous all-time high, eventually surpassing it and rising a further 239% over the next 119 days to a new all-time high of $64,799. The crypto winter finally ended in 2023, with bitcoin soaring 156% over the year, its best year since 2020.

On average, bitcoin has returned 671% per year since 2013, with the strongest returns in 2013 when it skyrocketed over 5,000% from $13 to $1,100. Between 2017 and 2019, bitcoin saw another impressive run as prices climbed to $20,000. In 2021, bitcoin reached all-time highs of $64,899, launching into a $1 trillion asset class.

As of 2024, the Bitcoin network consumes about 93 terawatt-hours (TWh) of electricity per year, drawing criticism from celebrities and government bodies over its impact on climate change. However, it's important to note that bitcoin mining accounts for at most 1.29% of any single country's energy consumption. There are also initiatives such as the Crypto Climate Accord and the Bitcoin Mining Council that aim to improve Bitcoin's carbon footprint by encouraging miners to use renewable energy sources.

Risks of investing in Bitcoin

Investing in Bitcoin comes with a variety of risks that you should be aware of. Here are some key risks to consider:

Volatile and Fluctuating Market

The Bitcoin market is highly volatile and unpredictable. The price of Bitcoin can fluctuate significantly in a short period, making it difficult to determine if you will get a positive return on your investment. For example, in November 2018, the price of Bitcoin was around $6,461, but it surged to over $20,000 just a month later in December 2017. However, a few days later, on December 24th, buyers could only sell their investment for $14,626. Therefore, it is crucial to closely monitor the market and make small investments to mitigate the risk of substantial losses.

Cyberattacks and Fraud

Bitcoin and other cryptocurrencies are technology-dependent, making them vulnerable to cyberattacks and hacking attempts. There is a constant threat of losing your Bitcoin investment due to hacking or online fraud. Additionally, the lack of a central authority or physical collateral backing Bitcoin means that retrieving lost or stolen Bitcoins may be impossible.

Regulatory and Tax Uncertainties

The Bitcoin market currently operates with little to no major regulations, as governments and regulatory bodies are still figuring out their stance on cryptocurrencies. The lack of clear taxation guidelines can lead to future problems, especially if Bitcoin starts competing with government-issued currencies. As a result, investors are advised to consult with tax professionals familiar with cryptocurrencies when filing their taxes.

Technology Reliance and System Shutdowns

Bitcoin is entirely reliant on technology for its existence and functionality. Without the underlying technology, Bitcoin has no value. This reliance on technology also exposes Bitcoin owners to potential system shutdowns or technological failures, which could result in financial losses.

Limited Acceptance and Potential Bubble Economy

Despite its popularity, Bitcoin is not widely accepted as a legitimate form of currency. Only a handful of companies accept Bitcoin as a means of payment, and it is not recognised as a standard currency by many governments and financial institutions. Additionally, some experts argue that Bitcoin is a Ponzi scheme that creates a bubble economy. They predict that when the bubble bursts, Bitcoin will become useless, leaving investors with significant financial losses.

High Transaction Fees and Costs

Investing in Bitcoin often involves incurring various fees and costs, such as transaction fees, exchange fees, and hardware wallet costs. These fees can quickly add up, especially if you are making multiple transactions or trading small amounts. Therefore, it is essential to consider these costs when deciding whether to invest in Bitcoin.

Bitcoin vs. other cryptocurrencies

Bitcoin is the original cryptocurrency, created in 2009 by the mysterious Satoshi Nakamoto. It runs on a blockchain, a ledger logging transactions distributed across a network of thousands of computers. Other cryptocurrencies that have come after it are known as 'altcoins'.

Ethereum is the second-largest cryptocurrency by market capitalization, with its own platform and currency, ether. It is popular because it enables smart contracts and decentralized applications (dApps).

Tether is a stablecoin, meaning its value is tied to the U.S. dollar. It is often used as a medium by traders moving from one cryptocurrency to another.

Binance Coin is a utility cryptocurrency that operates as a payment method for the fees associated with trading on the Binance Exchange. It can also be used for payments and purchasing goods and services.

Solana is a newer cryptocurrency, launched in 2020, that touts its speed and robustness. It runs on a unique hybrid proof-of-stake and proof-of-history mechanism to process transactions.

USD Coin is another stablecoin, pegged to the U.S. dollar. It is also powered by Ethereum.

XRP, formerly known as Ripple, offers a way to pay in many different currencies and is useful for cross-border transactions.

Dogecoin was created as a joke in 2013 but has since become a prominent cryptocurrency. It has unlimited issuance, meaning it is susceptible to devaluation as supply increases.

Toncoin was originally developed for Telegram's encrypted messaging platform but was abandoned and later taken over by the TON Foundation.

Cardano is a cryptocurrency platform that uses smart contracts and enables identity management.

Shiba Inu is an Ethereum-based altcoin that was created anonymously in 2020, featuring a Shiba Inu dog as its mascot.

Avalanche is a blockchain that was launched in 2020 and competes with Ethereum as one of the most popular blockchains for smart contracts.

While Bitcoin may be the most well-known, these other cryptocurrencies have also become highly popular, with unique features and functions.

Frequently asked questions