Ever since the digital asset was created over a year a decade ago, it has caused speculation around the world. Many people questioned whether this mysterious new currency would eventually prove to be a lucrative investment or just a passing storm. But with time, some of the first investors into Bitcoin found themselves holding one of the most successful investments of the decade and with impressive returns.
Since it is conception, Bitcoin has had a reputation for volatility. While any kind of investment comes with risk, but in the crypto-market, instability is a common factor that investors worry about. The main risk is price fluctuation: Bitcoin and other altcoins have been known to have a dramatic rise and fall in prices. Despite that, Bitcoin whales and bulls have continuously claimed that BTC is the future, and one day it will replace physical currency.
What makes Bitcoin valuable?
As the value of Bitcoin skyrocketed, many skeptics were shocked as the coin’s price crossed into thousands. Despite the fact that the code that makes up each BTC is actually worthless, today’s price of 1 BTC = $7,581.51. The value of Bitcoin is due to its’ scarcity and how difficult it is to obtain, especially now. The rate of BTC’s production has been cut in half. This was specially designed to reduce the number of Bitcoins in circulation before it approaches the 21 million limit set by its creator, Satoshi Nakamoto, in 2009.
The demand for Bitcoin exceeded the rate at which it can be produced, which naturally increased its price. As of January 2020, over 80% of all Bitcoins have been created, which is approximately 18 million coins. At the same time, this does not guarantee a price increase since cryptocurrencies are extremely unpredictable.
Bitcoin’s value depends heavily on the faith of its investors, the public’s interest in it as well as its integration into financial markets. It is also heavily affected by geopolitical turmoil, sometimes in a positive way. The performance of Bitcoin is crucial for the price of altcoins like Ethereum, for example.
How does Bitcoin work?
Bitcoin works on a decentralized public ledger called a blockchain. When consumers buy something using fiat currencies, debit/credit cards and banks verify these transactions. Bitcoin essentially does the exact same function, but it does this without involving governmental bodies or financial organizations. When you pay with BTC, Bitcoin servers check the validity of the transaction. To add new transactions to the blockchain, a computer must solve mathematical problems through a method called hashing. Once the problem is solved, it stores the transactions on the blockchain.
Advantages of Bitcoin Investment
The overwhelming performance of Bitcoin, both as an investment and cryptocurrency, has attracted a variety of investors and traders alike. The crypto coin that has been many times dubbed as liquid gold for many reasons.
- Liquidity – Due to the trading platforms and exchanges where Bitcoin is available, it’s become one of the most liquid assets in the world. Bitcoin can be easily traded for cash with very low fees. Digital currencies make great long-term investments due to their price fluctuations and high market demands.
- Reduced inflation risk – Decentralized currencies like Bitcoin are immune to inflation due to the fact that they are not controlled by governments.
- Growing opportunities – Because cryptocurrency trading is still a new concept. This brings new opportunities to the table, such as gains from price volatility. Plus, Bitcoin trading does not require you to have any prior experience in trading – you just need to sign up with an exchange or broker.
- Limited use – At the moment, BTC is not accepted universally, which means it cannot be properly used as a currency to pay for things.
Disadvantages of Bitcoin Investment
- Volatility: The price of Bitcoin fluctuates regularly. In 2017 its price jumped to $20,000 per BTC, and weeks later, it declined back into the $7k spectrum, which meant that investors lost a lot of their money.
- Limited use: As Bitcoin is not trusted by many people, there are only a few online merchants that accept it.
- Almost no regulation: Due to its decentralized nature, Bitcoin does not abide by any government regulation, which makes it subject to malpractice and fraud.
- Privacy: Security and privacy are important for Bitcoin investors; despite the fact that there are no physical Bitcoins, holdings can be hacked by criminals.
It is essential to be cautious when purchasing any kind of digital currencies, particularly due to the fact that Bitcoin exists outside governmental regulation and holds more risk and uncertainty, unlike traditional assets. On the other hand, Bitcoin has large rewards that could only be accessed by buying it and accepting the fact that there is no gain without some sort of risk.