Should I buy Bitcoin? This is the question that many people ask themselves when they hear about the brutal returns that this new currency has had over the past 10 years. After its creation in 2009, the Bitcoin price has been on a constant parabolic uptrend where its price has increased from less than $0.01, to $20,000 per coin.
In this short guide we will be covering some of the potentials and risks of investing Bitcoin, and will hopefully help you to answer the question of whether you should invest in Bitcoin.
What we cover in this guide:
- What makes Bitcoin special
- Potential of Bitcoin
- Risks of Bitcoin
- Important: So, should you buy Bitcoin?
In short, what makes Bitcoin special?
Bitcoin was created back in 2009 by its pseudonymous founder Satoshi Nakamoto. It was the first cryptocurrency to be ever created, and it has spawned an entire industry around it hundreds of businesses and thousands of new crypto assets. However, even though at the time of writing there are well over 1,000 cryptocurrencies out there, none of them has ever surpassed Bitcoin in total value (market capitalization) or in hash power (the computing power that keeps the network secure).
Furthermore, Bitcoin is also the most widely adopted and recognized cryptocurrency. There are close to 30 million wallets holding Bitcoin and there are thousands of merchants accepting this novel currency already. This is a very powerful first-mover advantage that will prove hard to be beaten by a smaller cryptocurrency.
To finalize, its important to note that Bitcoin is also the only cryptocurrency that has peaked the interest of large institutions. This has been clearly illustrated with the launch of Bitcoin Futures by the CME Group, the development of Bakkt by the parent company of the New York Stock Exchange, and also the dozens of ETF proposals that have been submitted so far.
The game-changing potential of Bitcoin
Bitcoin aims to redefine global money. Currently, the creation of money is in the hands of a few people whose interests are not aligned with the rest of the population. This leads to yearly inflation (loss of the value of money), and in some countries like Venezuela, to hyper-inflation, where money loses most of its value in just a matter of months.
In Bitcoin the creation of money is not controlled by anyone. Bitcoin has a hardcoded monetary policy that cannot be violated, and that makes it a form of money protected from the manipulation that fiat money (USD, EUR, GBP, etc) is subjected to.
Even if Bitcoin only becomes a form of digital gold and reaches the same total valuation as Gold, that would put the Bitcoin price at approximately $340,000 per coin. If Bitcoin manages to become the reserve currency of the world, which many supporters believe it will, the price per coin would skyrocket further at least 5 to 20 times higher than that since it would be absorbing a large portion of the value of currencies like the US Dollar.
Keep this in mind: there will never be more than 21 million Bitcoins in existence. That’s less than 1 Bitcoin for every millionaire in the world.
Risks of buying Bitcoin
Bitcoin is still a highly volatile asset, price drops of over 20% in a day are part of the norm. Furthermore, Bitcoin is still largely an experiment and you should treat it as such. You should never invest in Bitcoin more money than what you can afford to lose.
Due to the speculative nature of Bitcoin, even mere rumors like a country potentially regulating Bitcoin can already cause a significant price drop. At the time of writing, Bitcoin has had 6 major drops in its history where its price declined over -80% over the course of a year. However, to be fair, after each major price correction the Bitcoin price always surpassed the previous high, and made brutal new all time highs.
Important: So, should you buy Bitcoin?
Deciding to buy Bitcoin can be a life-changing decision, but there are also considerable risks attached that could result in the loss of your entire capital (even if Bitcoin does not go to zero).
We are currently working on an engaging and simple course to help you decide wether you should buy Bitcoin.
Among many other points, this course will cover:
- What exactly Bitcoin is and where it fits into our financial system
- The future outlook for Bitcoin as a store of value and reserve currency
- Potential risks to consider before investing in Bitcoin
- How high the Bitcoin price could go if it becomes widely adopted