Why You Should Consider Investing In Bitcoin Now

Investing in Bitcoin when it's low could be a good opportunity for people interested in buying cryptocurrencies. However, it is important to remember that cryptocurrencies are incredibly volatile and not suitable for all investors.

Bitcoin is still an emerging asset class, having been launched as recently as 2009. Its growth since then has been impressive, with returns of over 6.8 million percent in 2021.

However, it is crucial to approach any investment in Bitcoin with caution. The crypto market is highly volatile, and there are risks involved. It is essential to do your research, understand the market, and only invest what you can afford to lose.

If you're thinking of investing in Bitcoin, consider using a trusted and regulated platform like eToro, which allows you to get started with a minimum investment of just $10.

Bitcoin's volatility

Bitcoin is a highly volatile asset. Volatility is a measure of how much the price of a financial asset varies over time. It is calculated as the standard deviation of the last 30 days' daily percentage change in BTC price.

When compared to some prominent individual securities, Bitcoin has been less volatile. For example, over the last two years, Bitcoin has been less volatile than Netflix stock.

Despite Bitcoin's volatility, investors have historically been well compensated, and its volatility has not been as high as expected. Bitcoin has historically exhibited high volatility or high measures of standard deviation, but when examining its returns, many are disproportionately skewed to the positive side. This is evident in Bitcoin's Sharpe ratio of 0.96 from 2020 to early 2024, indicating that investors have been more than compensated for the risk compared to the S&P 500.

Additionally, Bitcoin's Sortino ratio of 1.86 is nearly double its Sharpe ratio, revealing that much of the volatility was positive. While Bitcoin has experienced significant price drawdowns and high standard deviations to the downside, there have been more instances of the price moving up quickly over time.

Another example is the impact of the COVID-19 pandemic, which disrupted the trajectory of the Bitcoin market. In March 2020, Bitcoin's price dropped by 40% within four days, leading to a spike in realised volatility.

In summary, Bitcoin is a highly volatile asset, and its volatility is driven by various factors, including speculation, market trends, and global events. However, its volatility has been declining, and investors have historically been compensated for the risk.

The risks of investing in Bitcoin

Volatile and Fluctuating Market

The price of Bitcoin is constantly changing, and its market is unpredictable. There is no guarantee of getting a return on your investment, and you could lose all your money. To avoid massive losses, it is recommended to keep a vigilant eye on the market and make small investments.

Cyberattacks and Hacking

As a technology-based investment, Bitcoin is susceptible to cyberattacks and hacking. If your Bitcoin is stolen, there is currently no way to retrieve it. Exchanges are more likely to be hacked, and even if you use a smart wallet, your investment is still at risk. Additionally, if you lose or misplace your wallet key, you may not be able to retrieve your coins.

Fraud

There is a significant amount of fraud in the Bitcoin market, with fake exchanges duping unsuspecting investors out of their money. This lack of security is a significant risk for investors, and while systems are being developed to address these issues, security remains a concern.

Lack of Regulation

Currently, the Bitcoin market operates with little to no major regulations. The government's stance on cryptocurrency is unclear due to its newness, and it is not taxed. This lack of taxation could lead to problems if Bitcoin competes with government currency in the future. The lack of regulation also means that investors could lose everything with no recourse.

Technology Reliance

Bitcoin is entirely reliant on technology, and without it, it is worthless. Unlike other investments, there is no physical collateral backing up Bitcoin. This makes Bitcoin owners more vulnerable to cyber threats, online fraud, and system shutdowns.

Block Withholding

New Bitcoins are created by solving "blocks," or mathematical equations, which are created every time there is a Bitcoin exchange. However, mining pools can use computational power to hide these blocks from honest miners, allowing a select few to benefit while others lose out.

Limited Acceptance

While Bitcoin is the most widely accepted cryptocurrency, only a few companies accept it as a legitimate form of currency. Most businesses do not recognize it as a valid exchange, limiting its usefulness as a currency.

Ponzi Scheme Concerns

Some people view Bitcoin as a Ponzi scheme, where people at the top benefit from the ignorance of others. As more people invest, a bubble economy is created, which will eventually burst, rendering Bitcoin useless. If this happens, many investors will be left holding cryptocurrency they cannot sell, resulting in a total loss of their investment.

Legal and Tax Risks

The legal standing of cryptocurrency is unclear due to its newness, and regulations are constantly evolving. In the US, the IRS has defined cryptocurrencies as property, subjecting investors to capital gains tax laws. Additionally, cryptocurrency wallets may soon be required to file FinCEN Form 114, a report for taxpayers with substantial holdings in foreign bank accounts. The lack of a centralized authority backing cryptocurrency can also lead to legal complications and make it difficult to resolve transaction disputes.

How to invest in Bitcoin

Investing in Bitcoin can be a risky endeavour, so it is important to do your research and understand the risks involved. Here is a step-by-step guide on how to invest in Bitcoin, along with some important things to keep in mind.

Do Your Research

Before investing in Bitcoin, it is crucial to understand the risks involved. Bitcoin is extremely volatile, which means its price can fluctuate greatly in a short period. There is a possibility of losing all or a large portion of your investment. Make sure you only invest money you can afford to lose.

Choose a Crypto Exchange

You can purchase Bitcoin through a cryptocurrency exchange, such as Gemini, Kraken, Coinbase, or Crypto.com. These exchanges offer a variety of cryptocurrencies and carry different fees and consumer protections, so be sure to research which one best suits your needs.

Set Up an Account

To create an account on a cryptocurrency exchange, you will need to provide personal information and verify your identity. You will also need to fund your account with fiat money (e.g. US dollars) before buying any crypto.

Decide How Much to Invest

As a rule of thumb, it is recommended to invest no more than 10% of your portfolio in risky assets like Bitcoin. It is important to assess your investment goals, risk tolerance, and financial situation before deciding how much to invest.

Place a Buy Order

Once your account is funded, decide how much Bitcoin you want to buy and place a buy order through the exchange. Follow the steps required by the exchange to complete the transaction.

Store Your Bitcoin in a Wallet

After purchasing Bitcoin, you will need to store it in a digital wallet. You can choose between a hot wallet, which is hosted by an exchange or an independent provider, or a cold wallet, which is a small, encrypted portable device that offers more security but takes longer for transactions.

Consider the Tax Implications

Keep in mind that buying and selling Bitcoin can have tax implications. In many places, cryptocurrency is treated as a capital asset, so you may owe capital gains taxes if you sell at a profit.

Monitor Your Investment

As a best practice, periodically review your investment portfolio to assess whether you need to rebalance your holdings. Depending on your goals and the market performance, you may decide to increase or decrease your exposure to crypto.

Diversify Your Crypto Portfolio

To manage risk, consider diversifying your crypto portfolio by investing in other cryptocurrencies or stablecoins. Each cryptocurrency has unique characteristics and risks, so be sure to research each one before investing.

Long-Term Perspective

Bitcoin is considered a good long-term investment by some analysts, who predict its price will rise over the next few years. However, its performance can be unpredictable in the short term due to its high volatility.

Remember, investing in Bitcoin carries significant risks, and there is no guarantee of profits. Always do your own research and consult a financial advisor if needed before making any investment decisions.

The best sites to invest in Bitcoin

Investing in Bitcoin and other cryptocurrencies can be a risky business. It is possible to get rich quick, but it is also very possible to lose it all. If you are going to invest, it is best to do so as part of a diversified portfolio.

Coinbase

Coinbase is one of the most popular cryptocurrency exchanges. It is user-friendly and allows you to invest directly with USD. You can buy and sell Bitcoin, Ethereum, Litecoin and over 30 other coins and tokens. It also allows you to earn interest on your USDT and earn token rewards. However, it has high fees unless you use Coinbase Pro and you don't have control over your private keys in the wallet.

Uphold

Uphold is a simple platform that allows you to trade multiple assets from one account. It supports a lot of crypto tokens, even some stocks, and is available as a desktop and mobile app. However, it is not as easy to use as some other exchanges and there are some reports of poor customer service.

Kraken

Kraken is one of the original crypto trading platforms and has a good selection of coins and tokens. It also allows margin trading. However, it is not as easy to use as some of the top platforms and there are some reports of poor customer service.

Gemini

Gemini is one of the largest and oldest crypto exchanges. It supports most major cryptocurrencies and pays competitive interest rates on assets. It also has a very user-friendly app-based interface. However, it has limited payment/deposit methods and customer service can be mixed.

Bitstamp

Bitstamp is one of the oldest cryptocurrency exchanges, operating since 2011. It offers over 70 tokens, instant crypto purchases with a credit or debit card, and a solid mobile app. However, staking features are not available to all users.

EToro

EToro has a huge variety of digital assets and even has a practice trading account. It is available worldwide and has low minimums to start. However, it has limited options in the U.S. and doesn't support as many tokens and coins as other platforms.

The future of Bitcoin

Bitcoin is the world's first and most well-known cryptocurrency, benefiting from the network effect. It is currently viewed by many investors as "digital gold", but it could also be used as a digital form of cash. Bitcoin's value has grown exponentially since its launch in 2009, and it has outperformed the traditional stock markets by a considerable amount.

Bitcoin's Volatility

Bitcoin is an incredibly volatile asset class, and its value can fluctuate drastically in a short period. For example, in mid-2021, Bitcoin's price went from highs of $61,000 to lows of $31,000 within a few months. However, a few months later, it hit an all-time high of nearly $69,000. This volatility can be intimidating for new investors, but it also presents opportunities for significant gains.

Bitcoin's Growth

Bitcoin's growth has been remarkable since its launch in 2009. In February 2011, it surpassed a value of $1 per token, and it took another two years to reach $1,000. By late 2021, Bitcoin reached an all-time high of nearly $69,000, translating to returns of over 6.8 million percent in ten years.

Bitcoin's Mainstream Acceptance

Bitcoin has the most mainstream acceptance among cryptocurrencies, with the debut of 11 new Bitcoin exchange-traded funds (ETFs) in January. This has opened a new chapter for Bitcoin, as mainstream investors can now track its performance without directly owning the digital currency.

Bitcoin Halving

The Bitcoin halving event that occurred on April 19, 2024, when rewards for mining Bitcoin were cut in half, is another catalyst for its growth. This event happens roughly every four years and is linked to Bitcoin's scarcity. Within 18 months of previous Bitcoin halvings, the price of the token has rallied fiercely.

Regulatory Landscape

The regulatory landscape surrounding Bitcoin and cryptocurrencies is still evolving. While some countries have started to recognize and regulate crypto exchanges and trading platforms, the lack of a complete regulatory framework is a concern for potential investors.

Bitcoin's Future Prospects

Despite the volatility and regulatory uncertainties, Bitcoin's future prospects look promising. Its finite supply, increasing mainstream acceptance, and strong performance compared to traditional stock markets make it an attractive investment option. Additionally, the development of supporting technologies, such as the Lightning Network, makes it easier for users to adopt and utilize Bitcoin.

Investment Strategies

When investing in Bitcoin, it is essential to have a clear investment strategy and a diversified portfolio. Dollar-cost averaging, where investors commit to regular, smaller investments, can help mitigate the impact of volatility. It is also crucial to only invest what you can afford to lose, as the crypto market's speculative nature means there is no guarantee of returns.

Bitcoin has had an impressive performance since its inception, and its future looks bright. However, it is essential to approach any investment in Bitcoin with caution, conducting thorough research and understanding the risks involved.

Frequently asked questions