Physician's Guide To Bitcoin Investment

Bitcoin and other cryptocurrencies have become increasingly popular in recent years, with some physicians choosing to invest in them or accept them as payment. Bitcoin is a virtual currency, or cryptocurrency, that is traded entirely online and offers lower transaction costs and increased privacy protections compared to traditional payment methods. While it can be a risky and volatile investment, some doctors see it as a way to diversify their portfolios and take advantage of its potential as a store of value. However, others warn that it is a speculative and unregulated investment with no intrinsic value, and its legality is still uncertain in many parts of the world.

Bitcoin's volatility and risk

Bitcoins Volatility and Risk

Bitcoin is a financial tool that carries risks, like any other payment method or currency. However, with bitcoin, the risks are slightly different from traditional currencies and payments. One of the main differences is the volatile price.

Understanding Volatility and Uncertainty

According to research from Yale and Northwestern, investors are more concerned about actual volatility in prices than periods of high uncertainty. Uncertainty is the degree of likelihood that an investment may change in value, whereas volatility is the degree to which the investment may change in value.

Bitcoin Volatility

Bitcoin has been referred to as a "very risky asset" by investors. Since its creation, it has been highly volatile. In 2010, bitcoin was valued at about 9 cents. By December 2018, its value had jumped to more than $9000, but plunged to $3400 by the end of that year. In November 2021, it reached a high of nearly $68,000, but by December of that year, it had dropped to $48,000.

Managing Risk

When it comes to speculating on bitcoin's price, it is important to remember that doing so is risky. If you are considering investing in bitcoin, it is recommended that you first ensure that you are on track with your other financial goals, such as having an emergency fund and paying off high-interest debt. Even then, only invest as much as you can afford to lose. It is generally recommended to keep your digital assets at no more than 2% to 5% of your net worth.

Diversifying Crypto Holdings

Another way to manage risk is to diversify your crypto holdings. While Bitcoin is the most well-known cryptocurrency, there are thousands of altcoins (any cryptocurrency other than Bitcoin) that you can invest in. However, most of them don't have a long track record to evaluate.

Storing Crypto Safely

Another factor that makes crypto a risky investment is that it is largely unregulated, so your investments won't be protected by the Securities and Exchange Commission or the Federal Deposit Insurance Corporation (FDIC). To minimize risk, it is recommended to use one of the larger crypto exchanges that emphasizes security.

Additionally, if you choose to store your crypto in a digital wallet, it is crucial to take extra precautions with your password. Unlike most online sites, you cannot reset your password for a crypto wallet, so if you lose or forget it, you may never regain access to your wallet or your cryptocurrency.

Time Horizon

The market for digital assets like cryptocurrency and bitcoin is rapidly evolving, with new coins and assets regularly being introduced. As cryptocurrency continues to gain mainstream attention, it is attracting institutional investors and federal and international regulators, which may lead to new regulations that could impact the market.

While bitcoin offers the potential for high returns, it is important to carefully consider the risks involved and take steps to mitigate them. By understanding the volatile nature of bitcoin, diversifying your holdings, storing your crypto securely, and only investing what you can afford to lose, you can help manage the risks associated with this asset class.

The pros and cons of investing in Bitcoin

Bitcoin is the oldest and most traded cryptocurrency. It is highly liquid, transparent, and relatively safe. However, investing in Bitcoin is also volatile, energy inefficient, and lacks proper regulatory oversight. Here is a more detailed overview:

Pros of investing in Bitcoin:

• High liquidity: Bitcoin is among the most liquid investment assets, and traders can trade it for other assets in the short term or buy and hold it for long periods.
• High returns: Bitcoin has the potential for high returns, and figures show that it has a significant ROI compared to other assets.
• Decentralised: There are no centralised authorities or central banks that may impose high fees or restrictions. Bitcoin is also global, so there are no exchange rates to deal with.
• Transparent: Bitcoin is a public ledger that allows everyone to see transactions as they are stored permanently on the blockchain, making it more efficient at fighting financing criminals than the current system.
• Protection from payment fraud: Bitcoin enables buyers to complete transactions without disclosing any confidential financial information to the seller.
• Fast and inexpensive: It only takes a few minutes to send any amount of money, and it is either negligible or has no cost.
• Portfolio diversification: Bitcoin is an excellent way to diversify a portfolio and reduce exposure to risks.
• Hedge against inflation: Due to its supply cap of 21 million coins and decentralised nature, some believe Bitcoin is immune to economic turmoil, geopolitical problems, and inflation.
• Backed by major investors: Over the last decade, huge names have become major investors in Bitcoin, including Michael Saylor, CEO of MicroStrategy, and Mark Cuban, who claims that 60% of his crypto holdings are BTC.
• Valuable business features: Bitcoin has various features, such as multi-signature authorisation, that can improve transparency and security in business settings.

Cons of investing in Bitcoin:

• High volatility: Bitcoin prices are extremely volatile, making it a risky investment.
• Slow transactions: Many users are frustrated with Bitcoin's slow processing times, which can take up to 10 minutes.
• Limited use: Bitcoin has limited use compared to other coins and depends on internet availability.
• Not 100% safe: Bitcoin can be stolen if held on an exchange, and many people find it difficult to manage private keys.
• Not regulated: There is little regulatory oversight, and the lack of regulations can lead to fraud and scams.
• Misunderstood: Despite its innovative technology, Bitcoin is still veiled in misconception, with many associating it with illegal services and crypto scams.
• Not energy-efficient: Bitcoin uses a proof-of-work mechanism to validate transactions, which is very power-intensive.
• Won't make the financial system fairer: Bitcoin is now dominated by excessively big investors who will do whatever it takes to squeeze as much money from it as possible.
• Community disagreements: Community disagreements have led to splits in Bitcoin, such as the creation of Bitcoin Cash, which can be discouraging for investors.
• Quantum computers: Quantum computers could overpower the Bitcoin network and render it useless.
• Doesn't work as intended: Bitcoin was designed to be a digital way to transfer value, but today, many people just hold it because they believe it will increase in value.
• Satoshi Nakamoto's disappearance: The elusive creator of Bitcoin, Satoshi Nakamoto, disappeared with 1 million BTC, and we have no idea what their intentions are if they ever returned.

How to safely invest in Bitcoin

Bitcoin is a virtual currency known as a cryptocurrency that is traded entirely online. It is a decentralised digital currency, meaning there is no central authority or government backing it. This also means there is no regulation from the US Securities and Exchange Commission (SEC) or foreign banking authorities.

The first thing to note about Bitcoin is that it is a highly volatile and speculative investment. Its value has fluctuated wildly since its launch in 2010, from 9 cents in 2010 to over $68,000 in November 2021, and back down to $48,000 in December 2021.

If you are considering investing in Bitcoin, here are some key points to keep in mind:

Do Your Research

Before investing, take the time to learn about the technology behind Bitcoin and the cryptocurrency market. Understand the risks and potential benefits, and make sure you are comfortable with the level of risk involved.

Diversify Your Portfolio

As with any investment, it is important to diversify your portfolio. Only invest a small portion of your funds in Bitcoin or other cryptocurrencies. Most advisors recommend allocating no more than 5% of your portfolio to volatile assets like cryptocurrencies.

Don't Try to Time the Market

It is difficult, if not impossible, to predict where the cryptocurrency market will move in the short term. Instead of trying to time the market, focus on long-term investment. Don't worry about short-term price fluctuations and invest for the long haul.

Stick to Your Plan

The cryptocurrency market is highly volatile, and prices can fluctuate significantly. You can't control the market, but you can control when and how much you invest. Be consistent and focus on your investment strategy, rather than chasing good performance or running from poor performance.

Be Prepared for Risk

Investing in Bitcoin and other cryptocurrencies is risky due to the volatility of the market and the lack of regulation. There is also the risk of losing access to your cryptocurrency if you lose your password or private key. Additionally, the tax treatment of cryptocurrencies can be complex and subject to change.

Store Your Bitcoin Securely

If you invest in Bitcoin, make sure you store it securely. One of the safest ways to store Bitcoin is in "cold storage", which means transferring your cryptocurrency to an offline, secure hardware wallet. This could be a USB drive or a commercially designed cryptocurrency wallet.

Understand the Limitations

While Bitcoin has gained legitimacy in recent years, it is important to understand its limitations. For example, while it offers increased privacy compared to traditional payment methods, it is not completely anonymous. Additionally, the high volatility of Bitcoin means it may not be suitable for everyday transactions or short-term savings goals.

In conclusion, investing in Bitcoin can be a risky proposition, but it may be worth considering as part of a diversified investment portfolio. By doing your research, understanding the risks, and investing wisely, you can safely invest in Bitcoin while minimising potential downsides.

The future of Bitcoin

Bitcoin's future remains uncertain, with its success dependent on a variety of factors.

Bitcoin's reputation as a highly volatile asset is well-known, with its value skyrocketing and plummeting over the years. In 2010, bitcoin was valued at about 9 cents. By December 2018, its value had jumped to more than $9000, but it then plunged to $3400 by the end of that year. In 2021, bitcoin's value rose to over $6500, and as recently as December last year, prices topped $19,000. In March 2024, bitcoin broke through the $69,000 level, even topping out at $73,000 before declining again.

Some experts believe that bitcoin's volatility is comparable to the dot-com and housing bubbles, and its critics include Nobel Prize-winning economist Joseph E. Stiglitz, who wants it banned. Billionaire investor Warren Buffett refuses to invest in bitcoin, although he admits it is an effective way to transmit money. He argues that it is "not a value-producing asset".

However, bitcoin has its supporters, too. Its decentralised nature, finite supply and cryptographic security have contributed to its appeal as a long-term investment vehicle. Bitcoin has been hailed as a hedge against inflation and a store of value akin to traditional fixed-supply assets like precious metals. Its durability, portability, scarcity, and liquidity are all seen as positive features.

Bitcoin's future performance will depend on a variety of potential catalysts. Factors such as institutional adoption, regulatory changes, and macroeconomic trends will all influence its price. The recent approval of spot bitcoin ETFs, for example, could be a key factor in influencing its price. Additionally, the halving events that occur roughly every four years and reduce the rate at which new bitcoins are created could also impact its value.

Looking ahead, some analysts predict that bitcoin's price could reach $200,000 by the end of 2024 or 2025. More optimistic predictions give a figure of $1 million per bitcoin by 2030, with one prediction stating it could be worth $1.48 million by 2030, and another suggesting $1 billion by 2038-2040.

However, there are also potential downsides to consider. There are concerns over bitcoin's long-term security and the impact of inscriptions on the bitcoin blockchain. The ecological footprint of bitcoin and other cryptocurrencies is also a major concern, with Bitcoin's annual electricity consumption putting it at the level of a top 30 country. If bitcoin continues to be criticised for its energy consumption, it could threaten its price. A swing in sentiment against bitcoin and cryptocurrency by governments could also decrease prices.

Overall, while bitcoin's future remains uncertain, its potential as a long-term store of value and its ability to provide diversification for investors has ensured that it will remain an asset class to watch.

Bitcoin as a payment method

Bitcoin is a virtual currency known as a cryptocurrency that is traded entirely online. It is not regulated by the US Securities and Exchange Commission (SEC) or foreign banking authorities. However, all transactions are logged into an electronic public ledger, which is called "the blockchain", to ensure their authenticity and prevent fraud.

Bitcoin can be stored in a cryptocurrency wallet, which can be accessed on both desktop and mobile devices. To pay with Bitcoin, you must first buy some using a credit card or a bank account. Then, you can copy the Bitcoin address of the merchant and paste it into a designated field in your wallet. Type in the amount of Bitcoin and click 'send'. The transaction should be completed in a few seconds.

Cryptocurrency payment gateways are also available to facilitate transactions between merchants and customers. These companies remove any uncertainties or reservations a merchant might have about cryptocurrency and allow them to offer more payment options. They act as transaction facilitators and instantly convert the cryptocurrency payment into the chosen currency of the merchant.

Bitcoin has been criticised as a vehicle for money laundering and other illicit transactions. However, it has received some legitimacy when two Chicago-based exchanges launched bitcoin futures, which are being monitored by the US Commodity Futures Trading Commission.

Frequently asked questions