Should You Invest in Bitcoin? A Level-Headed, Responsible Approach
You’ve probably heard stories about people who have made millions of dollars by investing in Bitcoin, but you’re not sure if it’s right for you. You’re not alone. Many people are curious about Bitcoin, but they’re not sure if it’s a safe or wise investment.
So, should you invest in Bitcoin too?
To help you make the fairest and soundest investment decision for yourself, we’ll take a look at the reasons for investing in Bitcoin (and two reasons NOT to). Plus, we’ll provide essential questions to guide your investment decision.
Four Reasons to Invest in Bitcoin
- Its potential as a better form of money: Bitcoin has shown remarkable growth since its inception, with many early investors seeing life-changing gains especially as its price appreciated into the tens of thousands. And this is all because it is the world’s first successful decentralized currency, beyond the control of any central entity. The idea of Bitcoin is so revolutionary that it borders on the ludicrous — Microstrategy founder (and vocal Bitcoin advocate) Michael Saylor says it best: “If it is not going to zero, it’s going to a million dollars.”
- Growing retail adoption: In Aug 2023, the total addresses holding Bitcoin reached an all-time high of 48 million, according to data from blockchain analytics platform IntoTheBlock. While this does not mean there are 48 million owners of Bitcoin, it is a very positive signal that more and more people are getting to know, and invest in, Bitcoin.
3.Growing institutional interest: Major institutions and corporations, including Tesla and Microstrategy, have invested in Bitcoin, lending legitimacy to the cryptocurrency. In April 2022, BlackRock, the world’s largest asset manager, announced that it would begin offering Bitcoin investment products to its clients.
With increasing institutional adoption, growing mainstream acceptance, and a finite supply, the fundamental economic principle of supply and demand comes into play.
In addition to the above, institutional adoption of Bitcoin is also being driven by the increasing availability of Bitcoin custody and trading solutions specifically designed for institutional investors. This makes it easier and more secure for institutions to invest in and manage Bitcoin.
4. Limited supply: This last point under-grids Bitcoin’s strongest value proposition. In a world where governments can print unlimited amounts of traditional currencies, Bitcoin’s limited supply and definite scarcity (there will only ever be a maximum supply of 21 million coins) is a beacon of hope for investors seeking a hedge against inflation.
As demand for a digital store of value and decentralized financial system continues to rise, the limited supply of Bitcoin can potentially drive its price to new heights, making it a compelling long-term investment for those seeking to preserve and grow their wealth in an uncertain financial landscape.
Two Reasons to Not Touch Bitcoin With a Ten-Foot Pole
Having said all the above, is Bitcoin a sure thing when it comes to an investment? Well, not necessarily, especially if the following describe you:
- You have low risk tolerance: Bitcoin is notorious for its price volatility i.e. its value can fluctuate significantly over short periods. It’s like trying to ride a rollercoaster blindfolded, but with your money on the line. If you can’t stomach the wild price swings, you might end up hitting the panic button and selling your precious digital coins at the worst possible moment.
- You have a short-term investment horizon: Bitcoin is an asset in a class of its own. Unlike bonds with fixed maturity dates or stocks where investors can have long-term expectations based on the company’s performance, Bitcoin lacks such fixed time horizons. There is no precedence to base its performance on–what if you need your money back next year to pay for your child’s university and Bitcoin’s price is still lower than what you bought it for? Again, you’ll have to sell at a loss.
A pretty short but nevertheless important list.
Questions to Ask Yourself Before Investing in Bitcoin
- What is my investment goal? Are you looking for short-term gains, long-term wealth preservation, or portfolio diversification? If your answer is short-term gains, stop here and put your money in the bank. If it’s the latter, proceed on.
- How much can I afford to invest? Rephrase this question as “How much can I afford to risk without losing a minute of sleep at night?” and you’ll get your answer. For some people, it’s a $1,000. For others, it’s $10,000 or $1 million.
- Am I prepared for volatility? Bitcoin is known for its price volatility. Are you mentally and financially prepared for the potential ups and downs? If not, abort.
- Have I done my research? Have you thoroughly researched Bitcoin, including its technology, history, and the broader cryptocurrency market? Do you believe in the potential of blockchain technology and Bitcoin’s role in reshaping finance and decentralized systems? If you answer yes to all, pat yourself on the back.
- Do I understand the risks? Are you aware of the risks associated with Bitcoin, such as regulatory changes and market sentiment shifts? If you answer yes, you may consider buying yourself some Bitcoin pronto (not financial advice.)
In Conclusion
In conclusion, there’s no denying that Bitcoin has carved out a unique place for itself in the financial landscape as one of the best-performing assets of the last decade, with its exponential growth turning heads and hogging headlines.
However, whether or not (or how much) to invest in Bitcoin depends on your risk tolerance, investment goals, and time horizon. It’s essential to conduct thorough research, understand the risks involved, and only invest money you can afford to lose–and who says you can’t start with $100 or $1,000?
Perhaps the simplest word of advice is this: invest in your own learning and understanding first before investing in Bitcoin. Having true conviction about Bitcoin’s potential will be your voice of reason come bear or bull market.
