Bitcoin Investment: Get Rich Quick Or Slow Burn?

Bitcoin has made many millionaires, and you could be one of them. In its 15-year history, Bitcoin has made plenty of millionaires. However, the media frenzy around Bitcoin millionaires has also led to a lot of people feeling like they missed out. In reality, the number of wallets with substantial Bitcoin holdings is just a handful. Bitcoin's value has increased massively since its early days, and it is now trading for around $65,000. This volatility makes Bitcoin a risky investment, but one that could pay off massively.

Bitcoin's finite supply and halving cycles

Bitcoin has a finite supply of 21 million coins, which is expected to be reached in 2140. This is built into the network's blockchain software, which dictates the rate at which new bitcoins are created. The software requires computers in the network to compete to verify transactions through a process known as 'mining'.

Bitcoin halving is an event where mining rewards are cut in half. This takes place about every four years and reduces the block reward by 50%. This lowers the supply of bitcoins entering the market, increasing scarcity and potentially raising its price if market conditions remain the same.

The Bitcoin halving is intended to counter any inflationary effects on Bitcoin by lowering the reward amount and maintaining scarcity. The halving also reduces the rate at which new coins are created, further lowering the available amount of new supply.

The first Bitcoin halving occurred in 2012, reducing the block reward from 50 BTC to 25 BTC. The second halving took place in 2016, lowering the reward to 12.5 BTC. The third halving happened in 2020, with a reward of 6.25 BTC. The fourth halving occurred in April 2024, resulting in a block reward of 3.125 BTC. The final halving is expected to take place in 2140 when the maximum supply of 21 million bitcoins will be reached.

Bitcoin's performance is often analysed in relation to its halvings. One notable observation is that holding Bitcoin for at least one halving cycle, or roughly four years, has never resulted in a negative return. Over this period, Bitcoin has shown an average annualised return of 30%.

While past performance doesn't guarantee future results, the fundamental numbers behind Bitcoin remain unchanged. With its finite supply and ongoing reduction in issuance rate through halvings, supply and demand dynamics increasingly favour price appreciation over time.

Long-term investment strategies

Investing in Bitcoin can be a good long-term strategy, but it is essential to approach it with caution and a comprehensive understanding of the risks involved. Here are some long-term investment strategies to consider:

Buy-and-Hold Strategy:

This is a straightforward approach where you buy Bitcoin and hold onto it for the long term, typically at least five years. This strategy assumes that Bitcoin will appreciate significantly over time, despite short-term volatility. It is essential to commit to a long holding period and not get discouraged by market fluctuations.

Dollar-Cost Averaging:

This strategy involves committing to buying a set dollar amount of Bitcoin at regular intervals, regardless of market conditions. For example, investing $100 worth of Bitcoin every month. This approach helps to reduce the impact of price volatility and takes the emotion out of investing, as you are not constantly checking your portfolio.

Exchange-Traded Funds (ETFs):

ETFs are a way to invest in Bitcoin indirectly and diversify your cryptocurrency portfolio. Spot Bitcoin ETFs, such as the iShares Bitcoin Trust or the Fidelity Wise Origin Bitcoin Fund, allow you to invest in Bitcoin similarly to investing in stocks. ETFs also provide exposure to the crypto mining sector and blockchain technology companies.

Diversification:

It is crucial to maintain a diversified portfolio when investing in Bitcoin. As a rule of thumb, don't invest more than 5%-15% of your portfolio in high-risk assets like Bitcoin. Ensure you have a solid financial plan that includes emergency savings and retirement planning before investing in cryptocurrencies.

Education and Research:

Take the time to study and understand Bitcoin, its technology, economics, and the broader cryptocurrency market. The more knowledge you have, the better equipped you will be to make informed investment decisions.

Long-Term Focus:

It's easy to get distracted by short-term gains or trendy meme coins. Maintaining a long-term focus will help you build a well-diversified portfolio that can withstand market fluctuations and generate real wealth over time.

Bitcoin's practicality

Bitcoins Practicality

Bitcoin is a cryptocurrency, a new kind of payment network and money. It was created by a person or group, going by the username Satoshi Nakamoto, who posted a whitepaper on a discussion board. Bitcoin operates without a financial system or government authorities. It can be used as an alternative to fiat currencies or as an investment, utilising peer-to-peer transfers on a digital network that records and secures all transactions.

Additionally, Bitcoin transactions are taxable events, which can be complicated and expensive, especially if multiple small transactions are made. This is why some people view Bitcoin as a store of wealth rather than a currency for everyday transactions.

Bitcoin transactions are also slower than traditional payment methods, and there are fees associated with each transaction. These fees are paid to miners, who are responsible for validating transactions and creating new blocks on the blockchain. The fees can average about $5 and occasionally spike to $100 or more.

Despite these drawbacks, Bitcoin has made many millionaires. Data from blockchain analytics platform Glassnode shows roughly 115,000 wallet addresses with a balance of more than $1 million. Bitcoin's performance is often analysed in relation to its halvings, which occur approximately every four years and reduce its inflation rate by half. Bitcoin analyst Willy Woo found that holding Bitcoin for at least one halving cycle, or about four years, has never resulted in a negative return. Over this period, Bitcoin has shown an average annualised return of 30%.

While Bitcoin may not be the most practical payment method for everyday transactions, it has proven to be a successful investment for many people.

Crypto credit cards

While investing in Bitcoin has made many millionaires, it is important to note that the distribution data suggests that Bitcoin ownership is highly concentrated, with only a handful of wallet addresses holding a balance of over $1 million. Therefore, while there is a chance to become rich by investing in Bitcoin, it is not a guarantee.

Now, onto crypto credit cards.

Brex Card

The Brex Card is targeted towards startups and offers a baseline rate of 1 point for every $1 spent. However, if you make it your only company card, you can earn higher rates through its Exclusive rewards program. The card recently added a redemption option that allows cardholders to redeem their Brex rewards for cryptocurrencies like Bitcoin and Ethereum. The redemption ratio is 100 points for 70 cents worth of crypto, which equates to a 0.7 cent value per point. The crypto rewards are exchanged through Coinbase, a cryptocurrency exchange platform.

Venmo Credit Card

The Venmo Credit Card offers a unique feature called Cash Back to Crypto, which allows cardholders to automatically purchase cryptocurrency using their cash-back rewards. Users can choose from four cryptocurrencies: Bitcoin, Ethereum, Litecoin, or Bitcoin Cash. The crypto can then be sold or held through the Venmo app. While there is no additional transaction fee for the auto-purchase feature, Venmo charges a small spread between the crypto market price and the current exchange rate.

Gemini Credit Card

The Gemini Credit Card is a crypto credit card that was announced in early 2021 and is now available to the public in all 50 states. With the Gemini Credit Card, users can earn crypto rewards automatically in Bitcoin or over 50 other cryptocurrencies on the Gemini cryptocurrency exchange.

Crypto.com Visa Card

The Crypto.com Visa Card is a prepaid card that can be topped up using bank transfers, credit/debit cards, or cryptocurrency. The card offers various benefits, including up to 5% back on all spending, airport lounge access, and free ATM withdrawals. To obtain the card, users may need to stake or lock up CRO tokens for a period of 180 days, depending on the card tier.

Mastercard Crypto Card Program

Mastercard offers a crypto card program that enables everyday purchases. In many markets, crypto partners work with financial institutions to issue cards, and Mastercard can help these partners launch their own branded solutions.

It is important to note that the availability of crypto credit cards and their features may vary depending on your location and the applicable regulations.

Bitcoin mining

Bitcoin is a cryptocurrency that runs on a decentralised computer network or distributed ledger that tracks transactions in the currency. When computers on the network verify and process transactions, new bitcoins are created, or mined. These networked computers, or miners, process the transaction in exchange for a payment in Bitcoin.

Bitcoin is powered by blockchain, which is the technology that powers many cryptocurrencies. A blockchain is a decentralised ledger of all the transactions across a network. Groups of approved transactions together form a block and are joined to create a chain. Think of it as a long public record that functions almost like a long-running receipt. Bitcoin mining is the process of adding a block to the chain.

In order to successfully add a block, Bitcoin miners compete to solve extremely complex math problems that require the use of expensive computers and enormous amounts of electricity. To complete the mining process, miners must be first to arrive at the correct or closest answer to the question. The process of guessing the correct number (hash) is known as proof of work. Miners guess the target hash by randomly making as many guesses as quickly as they can, which requires major computing power. The difficulty only increases as more miners join the network.

The computer hardware required is known as application-specific integrated circuits, or ASICs, and can cost up to $10,000. ASICs consume huge amounts of electricity, which has drawn criticism from environmental groups and limits the profitability of miners.

If a miner is able to successfully add a block to the blockchain, they will receive 3.125 bitcoins as a reward. The reward amount is cut in half roughly every four years, or every 210,000 blocks. As of April 2024, Bitcoin traded at around $63,000, making 3.125 bitcoins worth $196,875.

The mining process is what you hear called proof-of-work (PoW)—the work done to generate the winning hash is viewed as proof the miner validated the transactions in the block, so it's called proof-of-work.

Frequently asked questions