The Bitcoin Investment: What's The Real Deal?

When you invest in Bitcoin, you're buying into a decentralised digital currency that operates without the oversight of banks and governments. Bitcoin is a cryptocurrency, which means it's a digital asset that's usually created using a cryptographic computer networking technology called blockchain. This makes it possible to exchange cryptocurrencies without the need for a central authority like a bank.

Bitcoin is the first and largest cryptocurrency by market cap, and it's often referred to as digital gold. It's accepted as a form of payment by some retailers and merchants, such as Microsoft and Overstock.

To buy Bitcoin, you'll need a crypto exchange account, personal identification documents, a secure internet connection, a payment method, and a digital wallet outside of the exchange account.

Bitcoin's value

Volatility

Risks

Bitcoin is a risky investment with high volatility. It is generally considered only if you have a high-risk tolerance, are in a strong financial position already, and can afford to lose some or all of your investment.

Long-term investment

Bitcoin is a good long-term investment for the next one to three years. It is a worthwhile investment because it has the potential to be a non-correlated asset, similar to gold. This means it may not follow the trends of other assets, like stocks.

Diversification

To manage the risk of volatility, it is recommended that cryptocurrencies make up no more than 5% of your portfolio.

Where to buy

You can buy Bitcoin on crypto exchanges such as Coinbase, Binance.com, or eToro. You can also buy Bitcoin on platforms like Paypal and Robinhood.

How to buy Bitcoin

There are several ways to buy Bitcoin, including:

• Cryptocurrency exchanges: You can purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, and Crypto.com. These exchanges offer a range of cryptocurrencies and carry different fees and consumer protections, so it's important to research before choosing one.
• Traditional stockbrokers: Robinhood was the first mainstream investment broker to offer Bitcoin, and it charges no fees for Bitcoin trades. Other options include Webull, TradeStation, and Fidelity.
• Bitcoin ATMs: These work like normal ATMs, but you can use them to buy and sell Bitcoin. They are often placed in locations like convenience stores. Be sure to check the fees and have a plan for where to send your Bitcoin after purchase.
• Bitcoin exchange-traded funds (ETFs): The SEC recently approved spot Bitcoin ETFs, which trade over major exchanges and can be accessed through traditional brokerage accounts.
• Peer-to-peer money transfer apps: Cash transfer services like PayPal, Venmo, and Cash App allow users to purchase, store, send, and sell Bitcoin directly through their apps.
• Brokerages: You can use a brokerage like eToro to buy Bitcoin.

Once you've purchased Bitcoin, you'll need to store it in a digital wallet. There are two main types of digital wallets: hot wallets and cold wallets. Hot wallets are connected to the internet and offer faster transactions, while cold wallets are offline and provide extra security.

• Choose a crypto-trading service or venue: Select a cryptocurrency exchange, brokerage, or other service that suits your needs.
• Connect your exchange to a payment option: You'll need to link your bank account, debit card, or credit card to your chosen platform. Note that credit card purchases may incur additional fees and interest charges.
• Place an order: Decide how much Bitcoin you want to buy and place your order through the platform.
• Safe storage: Store your Bitcoin in a secure digital wallet, either a hot wallet or a cold wallet.

Bitcoin wallets

When you invest in Bitcoin, you are buying a highly volatile digital asset that is decentralised and unregulated. To store your Bitcoin, you will need a Bitcoin wallet.

Hot wallets are apps on devices such as computers, phones, or tablets. They are connected to the internet and are often free to use. They make it relatively easy to carry out transactions but may be more vulnerable to hackers. Examples of hot wallets include Trust Wallet, MetaMask, and Coinbase Wallet.

Cold wallets are devices that are not connected to the internet and are therefore considered more secure. They are ideal for storing large amounts of Bitcoin. However, they can be difficult to use while mobile and may require the purchase of a hardware wallet. Examples of cold wallets include Ledger and Trezor.

When choosing a Bitcoin wallet, it is important to consider factors such as security, ease of use, and the number of digital assets supported. It is also essential to back up your wallet and enable two-factor authentication to protect your Bitcoin from theft or loss.

Risks of investing in Bitcoin

Bitcoin is a digital currency that is issued and transmitted through an open-source digital protocol platform called the "Bitcoin Network". It is an online, peer-to-peer user network that uses a digital transaction ledger called the "Blockchain". Each transaction is recorded, timestamped, and publicly displayed in a "block" in the publicly available Blockchain, creating a verifiable transaction history of all existing bitcoins.

While Bitcoin is a successful currency today, there are some serious risks associated with investing in it. Here are some of the key risks that investors should be aware of:

Volatile and Fluctuating Market

The price of Bitcoin is constantly changing, and its unpredictable market makes it difficult to determine if you will get a return on your investment. The value of Bitcoin is influenced by sentiment, speculation, and market manipulation, and there is a high degree of uncertainty due to the lack of regulatory frameworks.

Security and Cyber-Security Risks

Bitcoin is technology-based and is therefore susceptible to cyberattacks and hacking. There have been significant incidents of theft on personal wallets and exchanges, and if investors lose or misplace their private keys, there is rarely a way to retrieve their coins. Additionally, Bitcoin is vulnerable to other malicious activities, such as phishing attacks, that can result in financial loss.

Fraud and Scams

The lack of security and regulation in the Bitcoin market creates a high risk for investors. There have been reports of buyers losing their investments on exchanges and mining losses due to fraudulent transactions and fake exchanges. The Consumer Finance Protection Bureau and the Securities and Exchange Commission have warned against these transactions, but security remains a significant concern.

Little or No Regulation

The Bitcoin market currently operates with little to no major regulations, as it is a new form of currency. The government's stance on cryptocurrency is unclear, and the lack of taxation could lead to problems if Bitcoin competes with government currency. The future of the Bitcoin market is uncertain, and there is a possibility that it may never be broadly adopted, leading to a complete loss of value.

Technology Reliance

As an online exchange, Bitcoin is entirely reliant on technology. Without the technology to support it, Bitcoin becomes worthless. Investors are more vulnerable to cyber threats and online fraud, and a system failure could result in a total loss of investment.

Loss of Confidence in Digital Currencies

Bitcoin and other cryptocurrencies are part of a new and rapidly evolving industry. Most cryptocurrencies are not backed by central banks, national or international organizations, or assets, and their value is determined solely by market participants. A loss of confidence in digital currencies could lead to a collapse of trading activities and an abrupt drop in value.

Bitcoin's history

Bitcoin is the world's first decentralised cryptocurrency. It was invented in 2008 by the pseudonymous Satoshi Nakamoto, who mined the first block of the Bitcoin blockchain (known as the genesis block) in January 2009. The identity of Satoshi Nakamoto remains unknown, with several suspects having been proposed.

The first open-source bitcoin client was released on 9 January 2009, and the first bitcoin transaction occurred three days later, when Nakamoto sent 10 bitcoins to programmer Hal Finney. The price of bitcoin at this time was $0.10. In May 2010, the first known commercial transaction using bitcoin took place when programmer Laszlo Hanyecz bought two pizzas for 10,000 bitcoins, in what would later be celebrated as "Bitcoin Pizza Day".

In 2011, bitcoin began to be used on the dark web, with the Silk Road marketplace, which exclusively accepted bitcoins as payment, launching in February of that year. In 2013, the US Financial Crimes Enforcement Network established regulatory guidelines for "decentralized virtual currencies" such as bitcoin, and the value of bitcoin rose to over $1,000. However, the same year, the People's Bank of China prohibited Chinese financial institutions from using bitcoin, causing the value of bitcoin to drop.

In 2017, the value of bitcoin rose to nearly $20,000, and mainstream investors, governments, economists, and scientists began to take notice, with other entities starting to develop cryptocurrencies to compete with Bitcoin. In 2021, El Salvador became the first country to adopt bitcoin as legal tender, and in 2024, 11 US spot bitcoin ETFs began trading.

Frequently asked questions