Bitcoin is a digital currency that has gone from relative obscurity to being talked about everywhere. It has been around for a while now and investing in bitcoin is becoming more and more popular, but what is it? Why should you invest in bitcoin? How can you invest in Bitcoin?
What is Bitcoin?
Bitcoins are exciting, futuristic currency. It is a cryptocurrency, or digital currency, that allows for peer-to-peer transactions without the need of an intermediary. It is a decentralized virtual currency not issued by any government.
That means that when you send money from your bank account to someone else in the form of a Bitcoin transaction there is no intermediary like a bank or third-party website involved. You don’t have to rely on any “guarantor of value" either because Bitcoins aren't backed by anything except for proof within their system itself so they're always worth what people think they should be worth at any given moment.
How does Bitcoin Work?
Bitcoin is built on a distributed digital record called a blockchain. As the name implies, blockchain is an ever-growing list of records that are linked to one another and contain information about each transaction such as date, time, total value etcetera. The blocks in which these transactions happen have unique identifying codes for each exchange so they can be strung together chronologically creating a long chain of blocks all with different entries inside them.
This highly secure blockchain verification system is what makes Bitcoin the most trusted and trustworthy currency in the world. In order to be accepted, a transaction block must pass rigorous testing by all of its users on one side of the equation (a majority) as well as those with access to encryption keys that can unlock it from another perspective (an individual's personal code). But these long numbers are unpredictable - they're randomly generated each time someone sends or receives bitcoin so there’s no way for anyone else to manipulate their value once entered into this system. Together, this creates an impenetrable security net against fraud unlike any other form of financial transactions- making Bitcoin not only safe but accessible around the globe.
Is Bitcoin a Good Investment?
Bitcoin's benefits have been touted by many as the wave of the future in terms of currency. It is a fast, reliable way to send and receive money without having to deal with banks or other traditional intermediaries and their fees. Also, since bitcoin transactions are encrypted it provides a high degree of security when making purchases online. It is hard to counterfeit and difficult to hack accounts. This system of protection against malware, user tracking and hacking attempts is essential for people who want to obscure their identities when making financial transactions online. This provides peace of mind to many who don't have faith in traditional financial institutions or worry about identity theft.
The Pros of Bitcoin Investing
You can short Bitcoins, which allows you to profit when the price goes down as well as allowing you to hedge your overall portfolio through diversification.
It's also extremely easy to set up and requires minimal knowledge, and deposits can range from a few dollars to several thousand.
Private, Secure Transactions Anytime — with Fewer Potential Fees
Bitcoin offers a more secure and private way to make transactions. Bitcoin’s ledger is public, which means that anyone can see the balance of any bitcoin address! The security benefits are obvious: unlike with traditional banking you'll never have your identity stolen because every transaction on the blockchain has its own key!
Bitcoin represents an important breakthrough in how we transfer money from one person to another without having to use banks or other third parties as middlemen for all our financial dealings.
The Potential for Big Growth
Bitcoin and cryptocurrency trading are new, which means you have the opportunity to make huge gains. Bitcoin is designed to grow as demand does so it's possible that no matter what happens with prices or volatility in this exciting market there will always be a chance for substantial growth! It seems like we're living through something similar now-there was never anything quite like bitcoin before, but more coins keep popping up on an almost daily basis. The only thing certain about investing in crypto right now is that things can change quickly here too (in both directions).
The Ability to Avoid Traditional Banks or Government Intermediaries
Bitcoin offers a way to avoid or get around strict capital controls in countries with tight monetary policies. Bitcoin is an alternative economic system based on decentralization, which can make it attractive for investors looking for opportunities outside of mainstream financial markets as well.
The Cons of Bitcoin Investing
Bitcoin is not a stable investment. The bitcoin market is volatile, and you need to make sure that your investment will grow in value. However, the volatility can also work against you if it dips too low which means there's always a chance of getting a bad return on an investment.
The price of Bitcoin constantly fluctuates so be careful when making any investments as the changing nature could equally mean huge losses or big gains for savvy investors, that's why you should always keep track of the market
Bitcoin transactions are irreversible, so if you lose your bitcoin wallet ID or password to a hacker, it is gone forever and cannot be recovered.
Also, it has an anonymity feature that some investors may not like. Bitcoin exchanges let you buy, sell, trade your cryptos using a mobile app or website which leaves them open to hacks from criminals looking for easy prey. And bitcoin held on an exchange isn't insured by the FDIC because it's not considered "traditional money."
Limited (but growing) Use
Bitcoin is currently accepted only by few merchants. This makes it an unfeasible investment vessel in the eyes of many companies, who don’t recognize bitcoin as a legal means to exchange goods and services with other individuals around the world. Besides this issue, there are also doubts about whether or not bitcoin will be able to survive due to its supply of only 21 million coins.
Not Protected by SIPC
Bitcoin is a decentralized currency that does not come with the safety net of SIPC. This means, if your brokerage fails or funds are stolen, you may be left out in the cold without any financial protection.
Bitcoin is an exciting new frontier for investing and trading, but it comes at risks too as there is no insurance coverage to protect against things like theft or broker failure (and since Bitcoin isn’t regulated by the federal government).
Bitcoin Investment Types
Just like other commodities, Bitcoin trading has evolved to include futures trading and Bitcoin derivatives.
Here are a few ways you can get involved with some of the choices:
Buying Standalone Bitcoin
Bitcoin can be traded like any other stock or ETF, but it's much more volatile. The only way to buy Bitcoin is through an encrypted wallet that you have the access keys for on trading apps like Coinbase. You'll need personal information when setting up your account and then deposit money in order to purchase bitcoins with your funds from a bank transfer or credit card; once you buy coins, they are stored securely because of the encryption technology.
To invest in bitcoin by purchasing one coin at a time would require lots of transactions while also incurring high fees each step along the process — not very practical if this kind of investment isn't short-term either (I'm going long). Buying fractional amounts sounds even less.
Greyscale's Bitcoin Investment Trust (GBTC)
In an attempt to invest in Bitcoin through the capital markets, investors have the option to choose Greyscale’s Bitcoin Investment Trust (GBTC). Utilizing this investment provides certain advantages that make investing in bitcoin a more digestible and accessible opportunity for investors of all levels. For one, shares of GBTC are allowed to be held within IRAs, Roth IRA accounts and other brokerage or investor accounts which allow easy access for all types of investors--who can now take advantage.
In reality, investors are paying for ease of use and security. GBTC arranges strong offline storage mechanisms so that less technical people can also get access to the bitcoin market.
Amplify Transformational Data Sharing ETF (BLOK)
Blockchain technology is all the rage among investors, and for good reason. The Amplify Transformational Data Sharing ETF invests in companies that are involved with blockchain technology - not just Bitcoin! BLOK's fund was originally created as a response to regulation problems; instead of investing directly into digital currencies like bitcoin, this fund looks at cryptocurrency-related businesses who are working on developing and implementing new technologies related to blockchains. BLOK has a low expense ratio of only 0.35% per year, and it invests in companies that are on the cutting edge by being first movers in this technology space - including some Bitcoin-related stocks like Coinbase.
Bitwise 10 Private Index Fund
The Bitwise 10 Private Index Fund is like a more personalized ETF. In contrast to the broad index, it includes only coins which have been selected by their team for quality and room for growth.
The world of cryptocurrency is an exciting and lucrative one, but also a dangerous place for the uninitiated. This fund offers investors diversified exposure to 10 different cryptocurrencies while providing security with traditional investment instruments like stocks in brokerage accounts and monthly rebalancing.
Reasons to Invest in Bitcoin
The price of Bitcoin has been highly volatile and as of late, it's on an upward swing, increasing in value by almost 20 percent in the last month. This has got some people whispering that Bitcoin may be poised to break out into the mainstream and gain widespread acceptance while others say it's an artificial inflation caused by traders trying to buy low and sell high.
Bitcoin Adoption is Accelerating
The Bitcoin phenomenon has seen an astonishing 700% increase in price over the past year. But what's driving this meteoric rise? It might be that it offers a way to transfer money anywhere without relying on third parties like banks or PayPal, which means there are lower transaction fees and much faster processing times than with those types of traditional financial institutions. Plus, its popularity is soaring because you can even use bitcoins when traveling internationally! The freedom offered by digital currency for consumers everywhere makes bitcoin more appealing as we watch our economic situation change around us day-by-day.
Bitcoin’s Value Proposition is Perfectly Suited to the Macro Climate
In the wake of a global financial crisis, Bitcoin was deployed as an alternative to fiat money. Its sudden appearance in 2009 left many people unsure about its potential and applicability. Despite being dismissed by everyone outside of a small group of idealists, it has remained resilient over the years due to low governmental interference and increased demand from those who have been let down by government-backed currencies time after time again - until now when we are seeing another economic downturn that is fueling uncertainty around traditional banking institutions once more while also providing fertile grounds for new innovations such as cryptocurrencies like Bitcoin!
What if the Bitcoin Stock to Flow model Holds?
An investing concept called 'stock to flow' can be used to quantify the scarcity of a good. When you think about it, this makes sense because there is only so much stuff that exists in any given year and time period we are living through right now.
This largely helps investors figure out how much demand they'll need for their goods, as well as when it might come time to start scaling back production if prices are dangerously high or just beginning a period where there's too little stock on hand.
An investment principle called 'stock-to-flow' can help determine what future investments will do based off the current level of stock available and input costs associated with producing more products (flowing). Investors utilizing this strategy take into consideration not only other factors like projected revenue but also fees related to supplying additional product lines such as materials needed, time and labor, the cost that is necessary to increase production, etc.
Wall Street is Going Crypto
Gold and equities were crushed in comparison to Bitcoin which was the best performing asset class of 2020.
One of the world's leading business analytics firms made an unprecedented move in 2020 by investing $250 million in Bitcoin. By acquiring a whopping 21,454 coins as part of their capital allocation strategy and with the value steadily rising since then to over 1 billion US dollars. It's no secret that the future is unknown and Wall Street analysts are also starting to take notice of the success of Bitcoin. With this kind of bullish analysis being presented to Wall Street investors may seem like a sign.
Bitcoin has Always Surpassed its Previous All-time High After a Price Crash and Recovery
If you’re not sure whether or not to buy Bitcoin, look at its price's historical data. In the last 10 years, it has seen many peaks and troughs in mainstream media reports that say, “Bitcoin is dead." But every time this happened bitcoin surpassed all of its previous highs so there's no reason why things would change now.
The numbers from the past show that Bitcoin is about to exceed its all-time high again – which it did in December before setting yet another new all-time high of almost 61 000 USD at the beginning of March this year.
Bitcoin investment can seem like a high-risk, high-reward type of investment. If one only invests what they are willing to lose, there is a limited risk of loss with the potential for substantial upside based on Bitcoin’s network effects and growing adoption. The supply shock following this year's halving combined with the volatile macro backdrop create favorable conditions that may allow Bitcoin to outperform in 2021
How to Invest in Bitcoin in 4 Steps
Join a Bitcoin Exchange
You should start with comparing the different exchanges and find which one is best for you. Different people prefer a certain exchange, so it's important that you do your research before joining any of them. Once joined and verified on an exchange or brokerage account, add funds from both bank accounts (and/or credit cards) then you can start trading.
Get a Bitcoin Wallet
If you buy bitcoin and don’t want to lose it, the next most important aspect to make a deal with is selecting a safe or secure wallet for storing BTC after buying. Mainly wallets are used for storing bitcoins that have been purchased from an exchange; they also allow transactions between two different addresses on the blockchain without any restrictions present during these transactions-- which means there's no central authority overseeing them! Now, among this variety of options available out there as far as cryptocurrency storage goes (hardware wallets come highly recommended), you need to choose what type of storage to use.
Connect Your Wallet to a Bank Account
Once you have opened your wallet, just follow these three easy steps: connect your bank account with your new wallet by entering information from each one and then add any significant info on the go-ahead page for use in future transactions; be sure that everything is securely stored so that no malicious party can view or steal them since they are completely anonymous until connected to an outside source.
Place Your Bitcoin Order
Now, the last step to complete this process is finding out how much bitcoin you want. Once you've done that, place an order and your money will be deducted from your bank account while the bitcoins are transferred into your wallet!
Bitcoin is a highly lucrative investment opportunity, and it will only continue to grow as time goes on. It might seem intimidating at first glance but after doing it once or twice everything should be second nature. The key to investing in Bitcoin is understanding the basics of it. Take you time to understand more about Bitcoin, how It works and what are the risks if you invest in Bitcoin.
The more you know about Bitcoin the better off your investments can become because there's really no limit to what they'll reach in value sooner than later!
I hope you found this guide useful, below are some additional sources where you can continue your research about Bitcoin. So, before you jump into the Bitcoin boat, make sure to weigh out the costs and benefits of doing so. Whether or not the time is right for you to take the plunge will solely be up to you. Good luck!