Bitcoin, you might have heard of it, if not, then you might be living under a rock. This new cyber currency has exploded in popularity recently and has certainly stirred things up on Wall Street. Just search, “invest in Bitcoin”, on Google and you’ll be lead to hundreds of “expert” traders selling their courses and training services.
The quality of many of these training programs is questionable of course, but their existence demonstrates the unprecedented popularity of this cryptocurrency. Millennials seem to be taking the biggest interest in the Cryptocurrency, with their youthfulness seeming to be the driver of their appeal.
There is no doubt that Bitcoin is a force to be reckoned with; its growing popularity makes it tough to ignore, but that bears the question, should you invest in it or not? Well, before you make that decision for yourself, try to understand what makes this digital currency such a hot bargain in the first place.
What Is It?
According to Investopedia, ”Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies”. Bitcoin operates independently from a central bank.
Basically, Bitcoin is just a digital currency that relies on its producer’s encryption to harvest its value. Bitcoin is the most popular amongst the cryptocurrencies due to it having the largest market capitalization. Other popular cryptocurrencies are Litecoin, Ethereum, Zcash, Dash, Ripple, and Monero.
Reasons To Invest In Bitcoin
#1. It’s new, volatile, and full of potential
One thing that makes Bitcoin so scary for senior investors is exactly what makes it so appealing to younger investors. The potential profit and extreme volatility are what attracts younger investors to it. Their dreams of reaching insane highs can outshine anything they could get with stocks. Many stocks take years to pick up steam, and even then there is no guarantee that you’ll make a profit. However, investing in Bitcoin could make you a substantial amount of money in a short period of time.
#2. It makes for a fun trade in your portfolio
Of course, something as volatile and dangerous as Bitcoin should never be the main source of anyone’s portfolio; it does, however, make for something good on the side. of course, blue-chip stocks such as Apple, Google, and Amazon, are amongst the safest for investors. But there is no harm in trading Bitcoin with some of the cash that’s left over.
However, don’t underestimate the amount you could lose. Investors should always be wary and do as much research as possible before putting their money into anything. Check outPsychological Traps to Avoid In The Stock Market for more tips.
#3. There are many options with Cryptos
Bitcoin is the most prominent of the cryptocurrencies, but it’s also the most expensive.
Reasons Not To Invest In Bitcoin
#1. It’s Not Backed By anything
When you’re investing in a stock, you’re investing in the probability that the business’s profit will grow, and simultaneously profit off the increase in its stock price. The price of the stock is mainly based off the cash flow that’s flowing in and out of the business.
The business’s ability to produce cash is essentially what gives investors the confidence to put their money in its stock. Investing in Bitcoin, however, is relatively different than investing in stocks. Bitcoin does not produce any cash at all; the price of Bitcoin is based on what someone is willing to pay for it in the future. Bitcoin shares similar characteristics with commodities.
The only difference being that commodities usually have a certain usage that creates the demand, and different producers that create the supply. While programmers produce Bitcoin’s supply, the demand is based on its price anticipation. The consistent usage of Bitcoin as a payment method is what its price stability relies on. The price stability of Bitcoin is entirely reliant on its consistent usage as a method of payment. If not, then bitcoin will basically have no value, and the end result could be catastrophic.
#2. It’s volatile
Bitcoin’s volatility is not only a benefit but also a hindrance. When you invest in something like Bitcoin, it’s always important to pay attention and react to the first chance of potential profit loss. The amount of money you put into it depends on your income level and how much money you feel comfortable with risking.
With that in mind, having a backup plan is essential; putting some money into bonds or options is a great way to leverage out some of that risk. Of course, every investment comes with its own share of risks and rewards, but it’s also important to be analytical and to never underestimate the craziness of the market.
#3. It just might be over hyped
Is it possible that with all the attention that Bitcoin has been getting on the news and through social media, that the price of the cryptocurrency may just benefit from it? Well, it’s entirely possible, IPOs are similar in the way that their commotion gets Wall Street’s attention.
But Bitcoin is something else, it’s a global phenomenon, and with that comes the paranoia of a potential loss in its value. A cataclysmic end to Bitcoin sure won’t be a pretty one, but it’s something to think about when investing in this glamorized currency.
With any investment you make it’s important to do your homework and understand what you’re putting your money into. Passively investing in Bitcoin will increase its risks, but trading it correctly can be very lucrative.
Depending on how well you comprehend cryptocurrencies and what influences their prices will determine your success. Cryptocurrency scams are everywhere and they promise overnight success.
This is a fantasy, Bitcoin will never make you rich overnight; like anything else, Bitcoin has its risks and rewards. Considering its risks is up to the investor’s intuition and knowledge. Do what you feel comfortable with, and if done correctly, Bitcoin can make a great addition to your portfolio.