Why Invest In Bitcoin - Is Bitcoin A Good Investment For Beginners?
Invest in bitcoin have always had polarizing views. On one side, we have investors who swear by bitcoin with other cryptocurrencies. And, on the other hand, there are hardcore sceptics that believe cryptos are nothing but lines of codes.
But, nothing has been as controversial and intriguing as Bitcoin in the world of investment and money. Satoshi Nakamoto was the first man who formally introduced bitcoin in 2008.
In this article, we will critically analyze whether Bitcoin is a good investment choice or not. We will take a look at the uses and benefits it provides as well as the risk involved with bitcoin.
A Short Introduction To Bitcoin
If you have heard about bitcoin only in the news and movies without having a clear idea, here’s a brief explanation on it. Bitcoin is a digital currency or coin that is decentralized in nature with limited supply.
The goal for creating bitcoin was to replace the existing monetary system that depends on central authority such as banks, governments, etc. Bitcoin eliminates these middlemen by operating on a public distributed ledger, blockchain.
Besides, blockchain is nothing but a network of nodes. All nodes contain permanent and immutable transactional information. Thus the security and integrity of transactions are not compromised.
Mainly, miners who deploy dedicated mining rigs to solve complex mathematical equations, verify transactions After verification, it is added to the blockchain. However, the working process of bitcoin is vast. So, we are recommending the article how bitcoin works to our newbie traders where we explain about bitcoin and blockchain in detail.
After bitcoin, many other cryptocurrencies have entered the market. But, in the end, there is a vast array of cryptocurrencies that you can invest in offers different uses. Still, we are interested in Bitcoin, the crème de la crème of cryptocurrencies.
Features Of Bitcoin You Must Know
Before you invest in an asset, you need to be aware of certain features of that asset to evaluate if it’s worth your investment. Bitcoin possesses salient features that make it an attractive investment option. They are:
Limited Supply Like Gold
Only 21 million bitcoins exist where approximately 85% have already been mined that makes it a scarce asset. A report says that out of these 21 million, approximately 4 million bitcoin have been either lost or stolen. The reality is, these lost or stolen bitcoin may never be recovered.
Compare this limited supply to that of world currencies and you will notice a stark contrast. The government can print as much as the money they want. So, they are the ones who control the supply rate and value.
On the flip side, there is no way you can manipulate the supply of bitcoin. It is completely controlled by the open-source Bitcoin software. Every time new bitcoin created, after adding a block to the blockchain.
Moreover, it is in direct contrast with the Federal Reserve that prints money almost every day, causing inflation of the economy.
Also, the limited supply can only mean one thing; over time, the supply becomes rarer, and its value will keep increasing. And, this is why bitcoin will never be zero, and it will always be worth something.
Transparency In Transactions
Repeatedly this major coin is the most decentralized and transparent trading asset in existence with all information such as the total supply of bitcoin, number of mined bitcoin, transactional volume, market cap, and price history.
Every transaction is recorded on the blockchain, which involves with bitcoin since its creation. The data is permanently stored and publicly accessible.
On the other hand, with the fiat currency system, we don’t have any historical data of transactions. Neither we know how much money is printed every day, nor they are accountable to the general public.
Besides, bitcoin is safe from any government, bank, a federal body, or company intervention. It is completely independent and free from any influence.
Data Privacy
Despite being so transparent, bitcoin offers privacy to its users. Sure, all the transactional information is readily available on the blockchain, but the identity of the people who carried out the transactions is unknown.
Unless you give out that information yourself, it is quite difficult to link your bitcoin wallet address to you. Meanwhile, your fiat financials are known to the government and the banks and can be traced down to you.
Low Transaction Fees
Bitcoin can be a great option for those who regularly transfer money. Compared to bank wire transfers, bitcoin transfers cost you a fraction of those fees.
For example, for outgoing international wire transfer, banks charge you $30-$45 on average. The same when using bitcoin will cost you only a few cents to a few dollars, depending on the amount of bitcoin sent.
Some cryptos offer cheaper fees than bitcoin. But bitcoin largely remains as the preferred choice for users due to its value, popularity, and acceptance. Cross border payments with bitcoin are quite hassle-free and quick, compared to the traditional methods.
Censorship Free
Bitcoin is completely free from any sort of censorship. No central authority, government, or banks can block your transaction, and close your account. Meanwhile, the government or bank can choose to freeze your account any time they want.
They can block your transaction solely based on suspicion. There are countries like China, Brazil, Russia, etc. where the government exercises capital control. That means they censor the citizen’s finances as per their wish.
In September 2017, China banned cryptocurrency exchanges and initial coin offerings (ICOs) from operating in China. But, nothing stops people from holding on to crypto and using it for payments.
In many countries, the importance of owning bitcoin is quite a blessing. The government can neither block nor track bitcoin transactions. Essentially, Bitcoin opens the door to financial freedom.
The Price History Of Bitcoin
The features of bitcoin make it a solid option for investment. We have seen that it has strong fundamentals with privacy, security, transparency, and limited supply.
But, what about its performance over the last 10 years in the market?
When an investor is interested to cash in on an asset, he primarily looks at the price history and returns from that asset. These two are important metrics that determine whether an asset is attractive enough to invest in or not.
Bitcoin began with humble beginnings when it was worth nothing. On May 22nd, 2010, Laszlo Hanyecz purchased two Papa John pizzas using bitcoin. It was the first public transaction using this most popular virtual currency.
He bought 2 pizzas for $25 in exchange for 10000 BTC. That puts the value of bitcoin at $0.0025 at that time. On February 2011, Bitcoin reached parity with the dollar (1 BTC = $1). Next year, it reached $13, and by April 2013, it rallied to $266.
On the flip side, it bottomed at $70 in June 2013. But, by Nov 2013, it skyrocketed past $1000 peaking at $1242. From Nov 2013 to March 2017, bitcoin experienced many highs and lows ranging from $1150-$200, until it broke the previous ATH to reach $1290.
From there on, bitcoin didn’t look back. It went on a major rally starting in April and peaking at $5000 during September. China’s crypto ban caused BTC to dip sharply back to $2900 and after this Bitcoin experienced one of the greatest bull runs of all time!
By October, Bitcoin was traded at $5600 level, and by the end of November, it crossed $10000. December 2017, is still considered as the most volatile month for crypto as bitcoin jump from $11000 up to $19665 and then dipped steeply to $13800.
2018 was also bearish for bitcoin and cryptocurrencies in general. It continued falling drastically, notably, dropping 50% in value in half a month to $6200. It ended the year at $4300 mark.
The beginning of 2019 didn’t fare well for bitcoin as it hovered around $4000 until March. From April onwards Bitcoin started rising again rapidly, and within June, it again surpassed the $10000 mark.
Volatile Nature Of Bitcoin
Looking at the entire value history of bitcoin, we can derive two conclusions; Bitcoin is highly volatile and offers you super-high returns if you invest at the right time. Analysts even say Bitcoin is the best performing asset ever.
Cryptocurrencies are generally considered highly volatile compared to other assets such as stocks, indices, currencies, etc. To put bitcoins volatility into perspective, over the last 10 years, it experienced 85% drops and still up by 400% in the last two years.
Such extreme volatility may discourage new investors to put money into bitcoin. But if you understand the fundamentals of bitcoin and the blockchain, you will realize bitcoin is here to stay.
It won’t just magically go to zero. Granted the price bumps are quite drastic, but with bitcoin, you have to think long-term.
However, investing blindly is not wise when it comes to bitcoin. Technical analysis plays an important role in predicting the movement. The truth is, none can predict the market 100% accurately all the time. There are too many players in the market.
Mostly, any major news about Bitcoin causes a dramatic effect on its value. With major institutional players such as Fidelity involving themselves with bitcoin, which will cause more adoption, more transaction volume, and more volatility, positively.
Evaluating Bitcoins Performance
So we have established one concept strongly that bitcoin is volatile.
But, how it performed since its market entry?
The bitcoin rate of returns has some of the craziest numbers that are highly abnormal when you compare to traditional assets. At its peak, it was 25,000,000% up from the launch price.
Let’s compare that to the performance of stocks of the biggest global companies. According to a report by MarketWatch, if you had invested $100 in the IPO of Apple, you’d have $43,382 in return.
For Amazon, a $100 IPO investment would yield you $120, 596, and for Microsoft, the return would be $148,416.
These are by no means paltry returns. But when you compare them with Bitcoin’s $15,000,000 return, you start to see things from a different perspective.
No trading asset has outperformed bitcoin over the last decade.
Time after time, bitcoin has come back stronger from massive drops to newer highs. It is predicted that when the next bitcoin halving happens in May 2020, it will trigger a massive rally that will take bitcoin past its previous ATH ($19655).
Therefore, contrary to popular opinions, Bitcoin is a safe investment. At the time of writing this article, Bitcoin has been in the market for more than 3916 days. Out of these, Bitcoin has been profitable for 3683 days.
That means holding on to bitcoin has proven to be profitable 94% of the time. If you don’t consider that as a profitable investment, you need to evaluate your investment strategy.
Is It The Right Time To Invest In Bitcoin?
If you are one of those people constantly asking, “When is the best time to buy bitcoin?”, then I’ve got news for you. Truth is there is no definite answer.
Due to the extreme volatility of bitcoin, it is hard to pinpoint the bottom or the top. However, there are certain times to invest in bitcoin that will bring you maximum returns.
The key here is to not stress about buying the bottom. If you keep chasing the bottom, you might as well miss it.
Both economists Yukun Liu and Aleh Tsyvinski analyzed and studied seven years of bitcoin price data to come up with an optimal time to buy bitcoin. They came up with some specifications to find the optimal time to buy bitcoin.
These are summarized here:
- An investor should buy BTC when its value increases up by 20% from the last week.
- Another best days to buy BTC are on Sundays and Mondays. Historically, the price has been the lowest in these two days.
Keep in mind that these are just observations from the past price data. You should not consider this as a hard and fast rule.
When crypto was introduced, there were hardly any users. That was the best time to invest. Also, both the price and adoption was low.
But if you are late to the party, you are still welcome. Currently, there are a little over 7 million bitcoin users, where the world population stands at 7.7 billion. That means only 0.1% of the world population is using bitcoin. So, you can say the adoption is still low.
Other good times to buy bitcoin are before any major updates and bitcoin halving. Any major news or update that is expected to further facilitate bitcoin will cause a rise in its value.
On the other hand, bitcoin halving happens every 210,000 blocks or roughly every 4 years. So, the block reward to miners decreases by 50%.
Currently, the block reward is 12.5 BTC, which will be halved to 6.25 BTC in May 2020. As the reward decreases, miners are discouraged from mining.
It will reduce the supply of new bitcoin, but the demand will keep rising. Historically speaking, every time the block reward halved, bitcoin surged in value.
Is Investing In Bitcoin Risky?
Bitcoin is yet to reach the mass adoption that everyone hopes for. The sceptics’ believe bitcoin is nothing but a risky investment that may even go to zero. Many are concerned about the security of funds due to various crypto scams and hackers.
In reality, the blockchain designed to be secure. If users are cautious about their private keys and how they store their crypto funds, they should be safe.
They must research on the exchange that they wish to trade on before depositing money. You can start by investing a small amount, say $50 in bitcoin and work your way up from there.
However, there are certain reasons as to why investors are still reluctant to put their money into bitcoin.
They are discussed here:
~ Awareness:
Many think that bitcoin and the blockchain are way too complicated for their liking. In reality, they lack proper knowledge about its technology.
~ Regulation:
Bitcoin is still in the development phase and not recognized by government regulatory bodies. As such, investors are not willing to invest in something, where they cannot recover their funds.
~ Volatility:
Bitcoin’s super volatile nature makes it hard for its investors to be at peace at is jumps 30% in one day or drops 50% in a week. Most people want steady and non-risky returns.
Conclusion
Should the risks involved in bitcoin investment stop you from buying bitcoin? Of course not. The benefits that bitcoin provide far outweigh than the risks involved.
Bitcoin is a revolutionary system that will change the way people look at money. By the same token, it is fast, secure, decentralized, transparent, highly profitable, and offers privacy to its users.
As more and more countries start adopting bitcoin, its value will increase. It is already used in all major sectors, and bitcoin can replace the current flawed fiat system.
Invest in bitcoin today and secure your financial freedom for the future.
