As an investor, you are always on the lookout for new investment opportunities: an asset to put your money into with the hope of either long or short term reward. But there are no guarantees when it comes to financial investment. You can never be sure which options will pay out and which will be a waste of time and money.
New currencies, stock, and assets come and go, and it is the most skilled investors who can cut through all this information and work out the most lucrative path for obtaining a high return. The investment game is much like betting on a horse. They all have different odds and risk levels, and the more background information you have about the horses and riders, the better equipped you will be to make the right choice. Yet sometimes, it’s the most unlikely contenders that become winners.
And one of these unlikely winners in the investment world, when it originated over a decade ago, was bitcoin.
What is bitcoin?
Bitcoin is a form of digital money, otherwise known as cryptocurrency. Much like other forms of currency, a bitcoin has a value and can be used to make transactions online. But it is solely virtual, and it is decentralized, which means that it is not regulated by a financial authority like a government or bank. Cryptocurrencies such as bitcoin use secure blockchain technology to store and transmit data from transactions, all of which are recorded in a public database that anyone can view.
Although there are numerous other forms of cryptocurrency out there, bitcoin, which originated in 2009, is the market leader whose total worth amounts to a whopping 128 billion dollars. To give you an idea of its value, a single bitcoin is currently worth over $18,000.
Bitcoin has grown rapidly in popularity over the past decade, both as a form of currency and an investment option. But is it a good idea to add it to your portfolio?
The pros of investing in bitcoin
There are many excellent reasons to invest in bitcoin, and many investors reap huge rewards from doing so. To help you make your decision, here are a few good reasons to include bitcoin in your investment portfolio.
- Liquidity: Bitcoin has one of the highest liquidities of any cryptocurrency investment, meaning it retains most of its value when converted to other currencies. It therefore provides an excellent opportunity for short term profits.
- Low inflation risk: Since bitcoin is largely unregulated, it is immune to inflation, and so there is no need to worry about your bitcoin losing its value.
- Widely accepted: Over the last decade, bitcoin has become widely accepted as a payment method, and its mainstream appeal continues to grow.
The cons of investing in bitcoin
Despite this range of benefits, all investments have risks, and bitcoin is no different. To give you a fully balanced overview of whether investing in bitcoin is a good idea, here are some of the downsides.
- Volatility: The price of bitcoin is always changing, and there are examples of its value fluctuating by several thousands of dollars within a few weeks. The market is hugely unpredictable, so a sensible investor will need to keep a close eye.
- Security risk: Any cryptocurrency investor faces the threat of cyber hacking and there is the possibility that your investment could be stolen or your digital wallet lost.
- Little regulation: The bitcoin market is as of yet unregulated, meaning that it’s untaxed and governments have no clear stance on it. This could change in the future and result in investors being susceptible to huge taxes and restrictions.
How to invest
So once you’ve decided that bitcoin is the right investment for you, how do you even begin putting your money where your mouth is? Especially if you’ve never used cryptocurrency before. To get you started on your bitcoin journey, here are the steps you’ll need to follow in order to start reaping the rewards.
- Step 1: Get a bitcoin wallet
Much like a wallet for physical currency, you will need a digital wallet to store your bitcoin. As in the real world, there are many wallet options available to you, but the key decision is whether you want a hardware wallet or a software one. A software bitcoin wallet is a mobile application you can download, connecting with your bank account and making it quick and easy to transfer money.
The downside to this is that it puts your bitcoin into the hands of a third party. Although most traditional applications are secure, there are others that have been hacked in the past. A hardware wallet is a physical device, much like a flash drive, on which your bitcoin is stored. It is more secure in the sense that it can be hacked by third parties, but you do run the risk of losing or damaging it.
- Step 2: Connect your bank account
In order to start purchasing bitcoin, you will need to connect your bitcoin wallet to your bank account. You will have the option to buy with either bank transfer or using a credit or debit card.
- Step 3: Join a bitcoin exchange
A bitcoin exchange is a form of online marketplace where you can exchange crypto for other global currencies. There are many different exchanges, all of which will vary in the currencies they operate with, exchange rates, processing fees, and reputations. Therefore it’s a good idea to do your research before settling on a specific marketplace.
- Step 4: Place your order
Now that you have everything you need to become an investor, it’s time to make your first bitcoin purchase.
To sum up, bitcoin can be an extremely lucrative investment opportunity. It has the potential for high rewards, and the technology involved is much more secure and safe than other forms of cryptocurrencies. There are still risks, and it is not always predictable, but by making yourself as informed as possible and keeping an eye on the markets, you will have a very high chance of seeing success.
Be safe out there.
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