When Bitcoin was created, investors were open to investment options like stocks, bonds, and other assets available in the financial markets. Today, the cryptocurrency market is a major financial market where investors can trade and invest in several crypto assets.
Cryptocurrencies are encrypted virtual currencies designed as a medium of exchange. The most popular cryptocurrency is Bitcoin, the first crypto asset and the one with the largest market capitalization.
Cryptos like Bitcoin have gained much traction because they have features that make them a preferable option over bank currencies.
These features include:
- Decentralization, which ensures no central authority like the banks control the cryptocurrency,
- Anonymity, which allows users to trade without sharing their personal information,
- And security, which provides access to an account only when the keys to the account are provided.
Bitcoin has features that make for a functional, user-centric experience. It can be traded as a source of passive income, it’s used to pay for goods and services, and you can use it to withdraw cash at an ATM, but is Bitcoin a good investment?
Bitcoin investing: Is it safe?
The primary aim of investing is to build wealth. Nobody wants to make a bad investment that ends up in tragic losses. So, it’s worth knowing if Bitcoin is safe to invest in. Let’s explore how Bitcoin has performed over the years from its inception.
A look back at Bitcoin’s past performance
Here is a table detailing how much you would have made in 2022 if you invested in one Bitcoin across different years.
|Year of Investment||Price of BTC||% Change in BTC Price|
The prices are from September 5 of every year from 2015 to 2021.
If you bought $1000 worth of Bitcoin on September 5, 2015, following an 8400% increase over the last seven years, you would have $85,000 as of September 5, 2022.
If you bought $1000 worth of Bitcoin on September 5, 2020, when it was priced at $10,659, you would have gained 85.7% to become $1857 as of September 5, 2022.
But if you had bought $1000 as of September 5, 2021, when BTC was at $51,753 and gradually moved towards its all-time-high; as of September 5, 2022, you’d have been down by 61%, and your thousand dollars would be worth only $390.
As you see, Bitcoin has grown in price over the years, and it has had its share of ups and downs. Bitcoin is currently down from its all-time high of $69,000 on November 10, 2021. So, is bitcoin a good investment long-term?
Is it a Good Idea to Invest in Bitcoin?
Bitcoin became increasingly popular in 2021 because of its rapid growth. BTC went from its opening price of $28,994 on New Year’s Day of 2021 to its all-time high of $69,044 on November 10, 2021.
2022 was a bullish year for Bitcoin as the price kept climbing, but as of September 2022, BTC is down 71% from its all-time high. But does that make investing in Bitcoin a bad idea? No.
Like the stock market, there are cyclical phases in the crypto market. The bull and bear markets; the bull market represents a period where the price of a coin continues to increase, while a bear market is when the price of a coin falls from its peak.
The bull and bear markets are normal for all financial markets.
The best way to know if Bitcoin is worth investing in is by looking at its long-term performance. Bitcoin has proved very profitable for investors and short-term traders, leveraging slight price movements for profit.
But are there other factors aside from the profit potential that could make Bitcoin investments sour?
What Speaks Against Investing in Bitcoin?
Aside from choosing the right investment, the most important part of investing is securing your assets. Crypto assets are plagued with more security risks than stocks or bonds. When you buy Bitcoin on a crypto exchange, you can keep it in your wallet on the exchange.
But, many people prefer to move their Bitcoin into a cold wallet. These wallets can be in the form of web wallets like Metamask or devices like the Ledger Nano. Cold wallets give you primary control over your assets.
Unlike storing your assets in an exchange where they can be frozen on government request or subject to the effects of bankruptcy, cold wallets shield you from these risks.
However, storing your crypto assets in a cold wallet is great so long you keep your private keys safe, as you can’t access your Bitcoin if you lose your keys. In addition, if a hacker gets access to where you store your private keys, you can be at risk of getting hacked.
Aside from security issues, Bitcoin is a volatile financial asset. BTC’s price changes sporadically, and it’s important to have the right Bitcoin investment strategy.
What Factors Make Bitcoin an Attractive Investment?
Many factors make Bitcoin a rich option for investment. Bitcoin investment can work for you whether you’re a long- or short-term investor. Here are 4 factors that make Bitcoin investment a worthy option.
Anonymity and personal information privacy
One of the features of Bitcoin is anonymity. In an actual sense, you’re not entirely anonymous. Here’s how Bitcoin anonymity works. Bitcoin operates on the blockchain, the system that verifies and validates crypto transactions.
The blockchain contains information about all the wallet addresses that interact with it. So, although Bitcoin’s blockchain does not show your personal information, it displays your wallet address.
Speed of transactions
You can transfer your Bitcoin from your wallet to another wallet or to someone in another time zone in a few minutes. It’s less stressful, less costly, and easier to do than traditional bank transfers.
Lower inflation risk
Fiat currencies, national currencies the government issues for monetary transactions, are subject to devaluation during inflation. Because Bitcoin tends to increase in value over time, investing in it can be a good way to hedge against inflation.
Another factor that promotes the value of Bitcoin is its supply limit. There are only 21 million bitcoins that will ever be produced, so as the demand for Bitcoin rises, the price rises as the supply are limited.
Bitcoin is free from centralized regulation and is not owned by the government. Because Bitcoin is not centralized, no single entity can control and determine the coin’s value. The Bitcoin blockchain operates with the contribution of several miners who help to ensure transactions are safe and validated, and they’re rewarded BTC in return.
Pros And Cons of Investing in Bitcoin
|Your personal information is kept anonymous||It is a volatile asset and subject to frequent price fluctuations|
|It has a high return potential||Transactions cannot be reversed|
|It’s easily accessible and provides sufficient liquidity||Security breaches can expose you to getting hacked|
|It is independent and doesn’t rely on a central authority||Your investment cannot be recovered if you lose your private keys.|
Different Ways Of Investing in Bitcoin
There are different ways to invest in Bitcoin, from buying and holding for the long term to different trading methods.
Buy and Hold
The buy-and-hold investment strategy is as simple as it sounds. You buy Bitcoin at a good entry price and hold it long-term.
This method is displayed in the table above, which shows the price of one Bitcoin from 2015 to 2022. Bitcoin was worth $235 in 2015, $50,000 in 2021 and $19,900 in 2022.
In other words, Bitcoin is a volatile asset, and its price can change drastically over time. However, many early adopters that bought Bitcoin before the 2021 bull market are still in profit.
The advantage of being an early adopter is that you can buy Bitcoin at a very low price. The next best time to buy Bitcoin is in a bear market, when the prices have fallen to low levels.
Another way to invest in Bitcoin is to engage in crypto trading. There are two ways to trade Bitcoin; spot trading and derivatives trading. The golden rule is to buy when Bitcoin is at a lower price and sell when it increases to a higher amount.
There are different ways to carry out spot and derivatives trading. You can trade Bitcoin directly on crypto exchanges. You can also invest in companies like Coinbase (NASDAQ: COIN) or companies that invest in Bitcoin like Microstrategy (NASDAQ: MSTR) on the stock market.
In spot trading, you trade in the spot market, where you can buy Bitcoin when it falls to a lower price and sell when it rises to a higher price.
For example, if you buy $2000 worth of Bitcoin when its price is at $20,000 and sell it when it rises to $25,000, you’ll make a 25% profit. Your $2000 will gain 25% to become $2500.
You can trade futures, options, and perpetual contracts in the derivatives market. Futures is a contract to buy or sell Bitcoin at a specific price on a given date. Options allow traders to opt out of an agreement to buy or sell BTC at previously determined prices on the agreed day.
And perpetual contracts allow traders to open a long position, predicting a rise in the price of BTC, or a short position, predicting a fall. Perpetual contracts differ from futures and options as they do not have a settlement or expiration date.
When you trade crypto derivatives, you can make money whether bitcoin is rising or falling. But you need to have enough trading experience and expertise to be profitable.
Although derivatives offer greater profit potential with leverages, they also carry greater risks.
You can set a x2 leverage and get twice the profit you would have got in spot trade, but you can also lose your entire capital if the market goes against you.
How Much Should You Invest in Bitcoin?
If you’re new to Bitcoin, it’s important to understand how the Bitcoin market works. Investing in small amounts at first is advisable before transitioning to bigger amounts. Starting small will help you understand how crypto trading and investing work.
One popular advice in finance is never to invest more than you can afford to lose. While the goal is not to expect to lose money, you must be aware of its possibility and be emotionally and financially capable of dealing with such occurrences.
Expert Predictions on Bitcoin
Many people believe Bitcoin is the future of currencies. And several crypto experts and top voices have a lot to say about what bitcoin will be worth in the future.
In a recent interview with Noah Smith, Vitalik Buterin highlighted some predictions and concerns for the future of bitcoin.
Buterin believes that the volatility of Bitcoin and other crypto assets will drop to that of gold and the stock market.
He also shared the possibility of Bitcoin facing some security issues as rewards for mining BTC is declining.
Many crypto experts believe Bitcoin will hit the $100,000 mark in the next bull season. Crypto Analysts like Edward Moya suggest that no significant bullish trend will happen in 2022.
However, Edward reaffirms that Bitcoin is not going away anytime soon, although the bear market is beginning to make some investors doubt BTC’s potential.
So, is bitcoin a good investment in the current bear market? Bitcoin has the potential to yield good returns in the short term via trading and in the long term once the bull market begins. But, no one can control when the bull market starts or if BTC’s price will rise or fall. So, you should research, plan your investment properly and manage your risks efficiently.