The Bitcoin Investors: Who's Taking The Plunge?

Bitcoin is a popular type of cryptocurrency that utilizes a large chain of interconnected computers to store and protect your digital assets. It is a highly volatile asset that's prone to large and fast swings in value, which presents an opportunity for large returns but also poses a tremendous risk.

Bitcoin was created to solve a couple of big cryptocurrency flaws. First, it was designed to prevent crypto coins from being fraudulently duplicated. Cryptocurrency wouldn't be possible if anybody could duplicate a coin and create an unlimited amount of currency for themselves.

The world of crypto can be overwhelming for newcomers, but there are many resources and guides to help you get started.

Who's buying Bitcoin?

Bitcoin is a decentralised digital currency that you can buy, sell and exchange directly, without needing an intermediary like a bank. It was created in 2009 by a programmer or group of programmers using the name "Satoshi Nakamoto".

Bitcoin is one of the most widely used types of cryptocurrency. Virtual "coins" or "tokens" are used in a cryptocurrency system instead of physical cash. These coins have no intrinsic value and aren't backed up by gold or silver.

Bitcoin is a very high-risk investment. Its value may rise or fall dramatically in a very short period—even in a matter of hours or days. It is not backed by any physical asset, like gold or silver, and there’s no central regulator to ensure that the value remains stable.

Despite the risks, Bitcoin has become increasingly popular amongst investors. Its value has increased by more than 763% in just one year, outpacing traditional gains in the stock market.

Elon Musk's automotive empire, Tesla, recently announced it would purchase $1.5 billion in Bitcoin and intends to accept the cryptocurrency as payment in the future. Several popular FinTech companies like Square and PayPal have also announced their intentions to support cryptocurrencies moving forward.

The recent IPO of Coinbase Global, Inc. (NASDAQ: COIN), today’s leading cryptocurrency exchange platform, has also contributed to Bitcoin’s meteoric rise in value.

Some investors are buying Bitcoin because they believe it will become the currency of the future or a more popularly traded asset. Others see it as a good hedge against inflation.

In other countries—particularly those with less stable currencies—people sometimes use Bitcoin instead of their own currency. For example, people in Venezuela, Argentina and Zimbabwe (countries heavily in debt) are using Bitcoin.

Some investors are attracted to the potential for huge returns. Bitcoin's value has risen dramatically over the years. In May 2016, you could buy one bitcoin for about $500. As of Aug. 6, 2024, a single bitcoin’s price was around $55,175. That’s a growth of 10,935%.

However, financial experts do not recommend investing in Bitcoin unless clients express an interest. They suggest that Bitcoin should be a "side" investment and that no more than 10% of a portfolio should be allocated to it.

How do you buy Bitcoin?

There are several ways to buy Bitcoin, each with its own pros and cons. Here are some of the most common methods:

Cryptocurrency Exchanges:

You can purchase bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, Crypto.com, and Binance.US. These exchanges offer a variety of features, including multiple cryptocurrency choices and different fees and consumer protections. It is important to research and compare different exchanges before choosing one.

Traditional Stockbrokers:

A few traditional brokers, such as Robinhood, Webull, TradeStation, and Fidelity, offer their customers the ability to buy and sell Bitcoin. However, these options are limited, and Robinhood, for example, is not available in all U.S. states.

Bitcoin ATMs:

Bitcoin ATMs function like regular ATMs but allow you to buy and sell Bitcoin. They are often placed in locations where regular ATMs are found, such as convenience stores. It is important to consider the fees associated with these transactions and have a plan for where to send the Bitcoin after purchase.

Peer-to-Peer Money Transfer Apps:

Cash transfer services like PayPal, Venmo, or Cash App allow users to purchase, store, send, and sell Bitcoin directly through their apps. This can be convenient for those already familiar with these interfaces. However, purchasing Bitcoin through PayPal limits your ability to move your Bitcoin around easily.

Direct Purchase from Payment Processors:

You can also use payment processors like PayPal Holdings Inc. to buy Bitcoin. There are two ways to do this: by connecting your PayPal account to a debit card or bank account or by using the balance in your PayPal account to purchase Bitcoin from a third-party provider.

When buying Bitcoin, it is important to consider the fees, security, and ease of use of the chosen method. Additionally, it is crucial to have a secure digital wallet to store your Bitcoin, such as a hot wallet or a cold wallet.

Is Bitcoin a good investment?

Bitcoin is a risky investment with high volatility, and it should only be considered if you have a high-risk tolerance, are in a strong financial position, and can afford to lose some or all of your investment. It's important to maintain a diversified portfolio that includes several different types of investments to reduce your overall risk exposure.

Bitcoin has historically offered the potential for high returns. It is decentralized, and it has the potential to be a non-correlated asset, similar to gold. However, the price of Bitcoin can be extremely volatile and unpredictable.

There are several risks associated with investing in Bitcoin. The performance of crypto assets can be highly volatile, and there is a risk of losing money due to factors such as cyber-attacks, financial crime, and firm failure. Bitcoin transactions are irreversible, and there are limited consumer protections in place for crypto exchanges compared to traditional financial products.

Additionally, Bitcoin is subject to regulatory risks, as the legal status of cryptocurrencies can vary across countries and is subject to change. There are also concerns about the environmental impact of Bitcoin due to its energy consumption.

When considering investing in Bitcoin, it's important to do your own research, understand the risks involved, and only invest what you can afford to lose.

How does Bitcoin work?

Bitcoin is a decentralised digital currency that you can buy, sell and exchange directly, without an intermediary like a bank. Bitcoin was created by Satoshi Nakamoto, who described the need for "an electronic payment system based on cryptographic proof instead of trust".

Bitcoin is built on a distributed digital record called a blockchain. Blockchain is a linked body of data, made up of units called blocks, which contain information about each transaction, including date and time, total value, buyer and seller, and a unique identifying code for each exchange. Entries are strung together in chronological order, creating a digital chain of blocks.

Each Bitcoin is a digital asset that can be stored at a cryptocurrency exchange or in a digital wallet. Each individual coin represents the value of Bitcoin's current price, but you can also own partial shares of each coin. The smallest denomination of each Bitcoin is called a Satoshi, sharing its name with Bitcoin's creator. Each Satoshi is equivalent to a hundred-millionth of one Bitcoin, so owning fractional shares of Bitcoin is quite common.

A Bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and digitally sign transactions. This unlocks the central function of Bitcoin – securely transferring ownership from one user to another. Transactions are broadcast to the network and usually begin to be confirmed within 10-20 minutes, through a process called mining.

Mining is a distributed consensus system that is used to confirm pending transactions by including them in the blockchain. It enforces a chronological order in the blockchain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network.

Bitcoin mining is the process of adding new transactions to the Bitcoin blockchain. It's a tough job. People who choose to mine Bitcoin use proof of work, deploying computers in a race to solve mathematical puzzles that verify transactions. To entice miners to keep racing to solve the puzzles and support the overall system, the Bitcoin code rewards miners with 6.25 BTC for each new block. That amount of BTC equates to nearly $190,000.

How do you store Bitcoin?

Bitcoin is a digital asset, and as such, it can be challenging to store safely. There are several ways to store Bitcoin, each with its own advantages and disadvantages. Here are some detailed instructions on how to store Bitcoin securely:

Use a Crypto Wallet:

Creating a crypto wallet is the first step towards storing Bitcoin. A crypto wallet is essentially a digital wallet that allows you to receive, store, and send Bitcoin. You can create a wallet by installing a mobile app or a desktop application. Some popular crypto wallet options include the Bitcoin.com Wallet app, Coinbase, and Electrum.

Understand the Different Types of Wallets:

There are two main categories of crypto wallets: custodial and non-custodial. Custodial wallets are those managed by a third party, such as an exchange. In this case, the third party stores your private keys, which gives them control over your Bitcoin. Non-custodial wallets, on the other hand, allow you to store your private keys without involving a third party.

Hot Wallets vs. Cold Wallets:

Another important distinction is between hot wallets and cold wallets. Hot wallets are connected to the internet, making them more convenient for accessing and transacting with your Bitcoin. However, they are also more vulnerable to hacking attempts. Cold wallets, on the other hand, are offline wallets that provide greater security by keeping your private keys offline. Examples of cold wallets include hardware wallets (such as USB drives) and paper wallets (writing down your private keys on paper and storing them in a safe place).

Backup Your Wallet:

It is crucial to back up your crypto wallet regularly to prevent data loss. Store your backups in multiple secure locations to ensure that even if one backup is lost or damaged, you still have access to others. Additionally, consider using a strong password and encryption for added security.

Use a Seed Phrase:

A seed phrase is a series of randomly generated words that act as a master password for your wallet. It allows you to recover your private keys if you lose your storage device or access. Write down your seed phrase and store it in a safe place, just like you would with any other password.

Combine Hot and Cold Storage:

For added security, consider using a combination of hot and cold storage. You can use a hot wallet for day-to-day transactions and small amounts of Bitcoin, while using a cold wallet for storing the majority of your funds. This way, you balance convenience and security.

Stay Vigilant:

Always stay vigilant and follow best practices to protect your Bitcoin. Keep your software and operating systems up to date, as this can help improve the security of your wallet. Additionally, be cautious when providing your Bitcoin address to senders, as your public address can be seen by anyone.

Remember, there is no single method that guarantees the absolute security of your Bitcoin. It is essential to understand the risks associated with each storage option and to choose the one that best suits your needs. By following the above instructions and staying informed, you can significantly enhance the security of your Bitcoin holdings.

Frequently asked questions