- Bitcoin has been the top-performing asset over the past decade, and it is currently on the cusp of institutional adoption.
- It is decentralized, censorship-resistant, secure, and tamper-proof. Moreover, it acts as a hedge against inflation due to its supply being capped at 21Mn.
- The pros of investing in Bitcoin include liquidity, inflation-hedging, and global availability around the clock. The risks involved include volatility and potential hacks.
- When investing in Bitcoin, you can either buy and hold for the long term or trade it. This depends on your risk appetite.
Well, I could have ended this with an emphatic ‘Yes’. But then, I won’t be doing justice to my job if I didn’t walk you through the rationale behind this assessment. Bitcoin has been around for over a decade now. In these magnificent ten years, it has been declared dead, a Ponzi scheme, and a scam an endless number of times.
(Fun Fact: Here’s a website that tracks the number of times Bitcoin was declared dead).
But then, here we are. The top-performing asset of the past decade, Bitcoin stands taller than ever. So much so that we are on the cusp of institutional adoption. But why has Bitcoin risen leaps and bounds over the years? Is there some gas left for a newbie to jump in? Well, that’s what we plan to talk about today. So hang in there, take a breather and open up your mind. Because this one is going to dive deeper into the fundamentals of Bitcoin like never before.
What Is Bitcoin?
Bitcoin is the world’s first virtual currency. The term was first used in a whitepaper published in 2008 that defined Bitcoin as a peer-to-peer electronic cash transaction system.
Looks pretty basic, right?
Well, the devil is in the details.
Bitcoin is entirely decentralized. This means that no single entity can exert its authority over it. It is also designed to be censorship-resistant, secure and tamper-proof. This decentralization is embedded so deep in the roots of Bitcoin that even its founder is anonymous and goes by the name Satoshi Nakamoto.
If that’s the case, who is taking care of your transactions and security? Well, there is a fool-proof mechanism wherein nodes (computers) across the globe connect to the internet and provide computation in a bid to safeguard the network. These people are called miners. They do this to win block rewards as an incentive.
In a nutshell, Bitcoin has proven to be a resilient piece of technology that is capable of taking the load off the world’s monetary system.
Features That Make Bitcoin Unique
There are 16,000+ cryptocurrencies in the world as we speak. And talking of competition, each country has its unique monetary system backed by its own currency. So what makes Bitcoin stand out after all? Why as an investor should I care about Bitcoin when I have so much to look out for? Let us find out.
With the onset of the pandemic, the only solution the US Federal Reserve had was to print more money. All governments across the globe followed suit. Despite reckless printing, the economy dwindled for a brief period. Currently, we are reaping the fruits of this printing exercise. Inflation in the US has hit a 40-year high. The fed is trying to curb this by increasing the interest rates and hence curtailing the supply of money in the market.
My question is, were you asked before doing all this? And while the pandemic still seemed to be a legitimate excuse, what if the US goes into a war with China? I am sure the feds will fund that war by printing more money.
In essence, you are paying for government expenditures indirectly. Your hard-earned savings are losing its value because someone else gets to take a call on them.
Bitcoin, on the other hand, cannot be altered. There is no federal policy governing its usage. It is hard coded in law from day zero.
2. Hedge against inflation
As discussed above, excessive money printing leads to an economical hazard called inflation. In other words, fiat is unlimited and can be printed as much as the government wants.
On the other hand, Bitcoin is fixed. There can never exist more than 21M Bitcoin. It is coded in the protocol itself. Sounds similar? Yes. This is the primary reason gold accrues a lot of value.
But then, with technological advancements, even gold could be extracted at a faster pace, from newer mines. Bitcoin on the other hand has guaranteed scarcity.
Let’s take the example of a small country like Libya this time. What if some country attacks Libya? The moment Libya loses the war, the Libyan Dinar is removed from circulation, and the entire money the citizens hold goes to waste. This is mainly because the production of the Libyan Dinar is centralized and geographically constrained.
Bitcoin, on the other hand, is global. There are 80,000 nodes validating transactions. Bitcoin will continue to run until the last node is taken out. This makes Bitcoin immune from a single point of failure.
All governments across the globe face the problem of fake and counterfeit currency. The same applies to gold as well.
Bitcoin, on the other hand, cannot be forged. Since Bitcoin is purely digital with set laws of creation, there is no way one can double-spend it. (i.e. nobody can create copies of it)
Tracking money trails, especially with cash, is almost impossible. However, blockchains offer complete transparency with anonymity. This pseudonymous arrangement allows users to protect their identity while recording each transaction on a public ledger.
When it comes to conventional money, there are a lot of unnecessary checks and balances. For example, banks can choose if you are allowed to open a bank account or not. Moreover, they can set minimum balance requirements and maximum withdrawal caps on your money.
Bitcoin, on the other hand, is permissionless. You do not need KYC or any sort of eligibility to participate.
All you need is an internet connection, and you can control your Bitcoin the way you want.
7. Censorship resistant
Consider this: Imagine you are framed for some fraudulent activity. Unless you are proven guilty, the government can freeze your bank account and Demat account. They can also seal your property. Fundamentally speaking, you are not the real owner of your assets.
Bitcoin? Well, the only person who can take away Bitcoin from you is the one who has private keys to your wallet. Unless the private keys are compromised or, hypothetically, the internet is shut down for the entire world, your Bitcoin will always be yours. No government can ban or freeze them.
Is It Good to Invest in Bitcoin & What Are Its Pros and Cons?
There are two types of people in this industry. One, who are fanatics. They would plan to overthrow governments and establish the Bitcoin standard. Second, who believes that all this is a big scam?
Honestly, neither of them is rational in their approach. So in this section, we will talk about the pros and cons of investing in Bitcoin. That would offer you some perspective on whether or not Bitcoin is for you.
Benefits of investing in Bitcoin
Are you someone from the other side? Someone who has made it in stock markets already and planning to evaluate cryptocurrency as the next step? Wait no more. Let us find out how investing in Bitcoin is better than traditional asset classes.
Bitcoin is an extremely liquid asset. Given its comparison with gold, it can be quite difficult to sell gold at times. It is subject to various checks and audits. Apart from that, there is always this requirement to physically go to someone willing to accept that gold.
Bitcoin, on the other hand, is super quick to sell and convert to cash. All key exchanges of the world have sufficient liquidity to cater to Bitcoin sellers.
2. Hedge against inflation
As discussed above, Bitcoin acts as a hedge against inflation. Since it has proven scarcity, it ranks better than gold as a store of value. Currently, Bitcoin is inflationary with a decreasing rate of inflation (halves every four years). This will continue till 2140, post which no new Bitcoin will enter the ecosystem.
3. Global and always on
Bitcoin is a global asset. It can be traded any time of the day and any day of the year. This is in stark contrast to stock markets that operate for roughly 200 days a year for a fixed number of hours.
In addition to that, Bitcoin transactions are settled immediately. Unlike stock transactions that take approximately two days to settle, Bitcoin transactions are instantaneous.
Risks Involved in Investing in Bitcoin
It is time to discuss the other side of the story. What are the risks associated with investing in Bitcoin?
People often complain about the risky bouts of volatility associated with Bitcoin and cryptocurrency in general. Cryptocurrency can fluctuate pretty violently as there are no regulator-imposed upper/lower circuits to stop trading when a stock moves a particular threshold in either direction.
While Bitcoin has stood against the test of time, it is believed that, hypothetically, quantum computing can break Bitcoin by gathering the hash required for a 51% attack.
Another risk associated with Bitcoin is its storage. If you store your crypto on an exchange and the exchange gets hacked, you cannot recoup your crypto. Therefore caution must be exercised before deciding on a storage wallet.
Points to Consider Before Investing in Bitcoin
Just like any other asset class, cryptocurrency has risks associated with it. Therefore here are some words of wisdom before you consider jumping on the crypto bandwagon.
- Always invest as per your risk appetite. It is absolutely foolish to put all your eggs in one basket. Crypto is no different basket. Therefore, allocate a portion of your savings to crypto.
- Never invest more than what you can afford to lose. Cryptocurrencies are at a very nascent stage, and most of them are more likely to go to zero.
- This is not a get-rich-quick scheme. Be in it for the long term, and your patience and commitment shall be rewarded adequately.
- Beware of the volatility. For it will test you quite often. But the other side is really bright.
- Bitcoin is also subject to regulatory turbulence. While it cannot be banned, its price can fluctuate based on the government’s stance.
How to Invest in Bitcoin & What Are the Best Ways?
Now that we are on board, let us plan your first Bitcoin purchase. Trust me, you will always remember your first time. The adrenaline rush of true ownership awaits you.
So there are a couple of ways to go about it. You can either invest in Bitcoin via a centralized crypto platform where you simply load your wallet through your bank and purchase Bitcoin.
The other way is a lot smarter. Instead of betting on Bitcoin, you could invest in related themes. For example, if you are generally optimistic about crypto, you can pick a theme named Crypto Blue Chip from Mudrex Coin Sets. With a click of a button, you get exposed to some of the top cryptos in the world, including Bitcoin.
And with that explanation out of the way, what are the best ways to approach your first-ever crypto purchase?
1. Buy and hold
Bitcoin is a classic example of a buy-and-forget kind of asset. You can buy Bitcoin off a centralized exchange and store it in the exchange itself (not advised) or a cold wallet (a hardware wallet that is not connected to the internet).
However, it takes a little more courage than your average stock to stomach the volatility. Bitcoin rose from a measly $4000 to $70000 in the last year, only to hover around $20000 at the moment.
And if you have some spare time at hand, you can try to buy low and sell higher. Trading is a great use case for Bitcoin due to its volatile nature.
For pro traders, Bitcoin is available for spot trading and derivatives on most of the key exchanges.
As a spot trader, you simply predict the stock movement using charts and try to sell higher than your buy price. On the other hand, derivatives are a different ball game altogether.
For starters, you could take leverage (loaned amount) to boost your gains. Please bear in mind that it also amplifies your losses if things go south.
How Much Should You Invest in Bitcoin?
Although investing in Bitcoin should comply with your risk profile, as a rule of thumb, it is often suggested that you invest 10% of your portfolio in high-risk, high-reward assets such as cryptocurrencies. Within your cryptocurrency portfolio, Bitcoin should hold the majority position as it has the longest proven history of survival against all odds.
Apart from that, it is advised to put the money that you are fine with losing. Despite its resilience, Bitcoin is subject to a lot of external factors like regulations, computational advancement, hacking, and competition. Therefore, it is too early to take sides at this juncture.
Is Bitcoin Good for Long-Term Investment?
Now that you understand the nuances of Bitcoin considerably, it is time to introduce you to some community lingo.
Whenever Bitcoin would fall in price, there’d be a lot of posts and tweets saying 1 BTC=1 BTC.
This signifies that as an investor, you should NOT be paying attention to the short-term prices of Bitcoin. Because in the long run, when Bitcoin becomes a standard and common mode of exchange, you won’t have to derive its value in dollar terms. That’s when 1 BTC would be complete in its entirety (just like fiat is today).
And even if Bitcoin does not become the medium of exchange and takes the store-of-value route (digital gold), the prospects are pretty bright. Given the market cap of gold globally is $8T, there is a significant upside for BTC, which is hovering around $500B as we write this one.
Either way, barring the risks of getting hacked, Bitcoin is a sound investment from a long-term perspective.
Bitcoin Vs. Ethereum: Which Is the Better One to Invest?
Ethereum is not comparable with Bitcoin when it comes to fundamentals. While Bitcoin has all the properties of becoming a parallel monetary system, Ethereum plans to establish a global computer for running the internet and apps in a decentralized fashion.
In other words, if Bitcoin is the world’s money, Ethereum is the world’s oil.
As a prudent investor, it is wise not to take sides this early on and invest your funds in both these blue-chip assets. And while you are at it, why stop at BTC and ETH only? A quick way of investing in all Blue chip cryptos at once is by buying a Coin Set. Coin Sets are baskets of crypto based on different themes.
The Future of Bitcoin for Investors
As an investor, the time is ripe to start your investing journey with Bitcoin. Why? First of all, we are still very early in this space. If you compare Bitcoin with stock markets, the latter has centuries of history, while Bitcoin is just a decade old. Therefore, the growth potential is huge.
Secondly, the kind of network effects Bitcoin has generated in the past decade is incomparable with any other cause. So many top gun VCs, investors, developers, entrepreneurs, and influencers promote Bitcoin. This validates that the future is definitely bright for this tech and crypto.
Finally, Bitcoin has fallen from its all-time high of $69,000. Every four years, Bitcoin tends to beat its previous all-time high. If this continues, we’re sitting on a generational buying opportunity.
So, to sum it all up, Bitcoin has been, so far, the hardest money known to mankind. It has proven its success in the past decade and is likely to accelerate further in the coming years. If you are on the edge of this tech, it is time you consider your decisions again and evaluate your shift to the brighter side.
1. Is Bitcoin still a good investment in 2022?
Yes. Absolutely. It has fallen a great deal from its all-time high of $69,000. Historically, Bitcoin has beaten its previous highs in each cycle. If it could repeat that feat this time as well, we are looking at anywhere between 3x-5x returns in a really short period.
2. Can you make money with Bitcoin?
While money should not be the only motivator when it comes to investing in Bitcoin, there are definitely ways to make money from it. You could either hold it straight up to see your wealth appreciate. Alternatively, you could spot-trade it or use derivatives to long or short Bitcoin as per your analysis.
3. Can I invest in Bitcoin with $1?
Yes. The smallest unit of Bitcoin is known as Satoshi, which is 1 millionth of a Bitcoin. A lot of exchanges out there allow you to start your investment journey with as low as $1.
4. When should I buy and sell Bitcoins?
To best reap the benefits of Bitcoin’s appreciation, it is advised to buy them periodically and do dollar cost averaging. Say the first of every month. The best tie to sell Bitcoin is whenever your investment goal has been met. Please keep in mind that Bitcoin should be used for goals with a larger time horizon.