You’ve heard the news by now about bitcoin – but is investing in bitcoin a good idea? Is it really the currency of the future or just some fad that will eventually die?
In this post, we will explore whether investing in bitcoin is a good idea and who it may or may not be for. It’s rumored to be risky for a reason, and that rumor is true. It’s risky – but is that a good or bad thing? Well, it depends on who you ask.
Bitcoin risks – is bitcoin safe to invest in?
Let’s look at two important risks to consider when looking at if bitcoin is safe to invest in; volatility and security.
Financial disclosure: this content is for informational purposes only and is not to be considered professional advice.
Volatility
What makes bitcoin inherently risky is its volatility. Bitcoins’ value is determined by the market. This means whatever people decide they are willing to pay for is its price. Because crypto is new and unregulated, the market sentiment, which is just a fancy way of saying how people feel about it, changes drastically every day.
While institutional investors are adopting bitcoin, we are seeing governments try to figure out how to regulate Bitcoin along with other cryptocurrencies. With more adoption, there is more regulation on the horizon and what that will look like is uncertain. This further contributes to bitcoin’s volatility.
Security and storage
Bitcoin is very attractive to a thief, as with any asset. But bitcoin is a main target because of its lack of regulation and non-refundable nature. No one controls bitcoin the way banks and governments control money, so if bitcoin is stolen there are no authorities to call, no fraud department who will refund you, or insurance policy to file a claim with. Once is lost, there is little you can do to get it back.
For this reason, securing your bitcoin is of the highest priority. Owning Bitcoin puts you at risk of theft. To ensure the safety and security of your bitcoin, it’s highly recommended you store it in a cold wallet.
Why are people investing in Bitcoin?
When asking yourself, “should I invest in bitcoin?” it is helpful to look at why others look to this new asset as an investment. Every bitcoin investor has their own motivations for investing in bitcoin but there are some of the most popular reasons that drive people to invest in its technology.
Inflation
The US dollar is the world’s reserve currency but its value is becoming weaker over time. Countries like Russia and China are actively trying to move away from doing business with the US dollar and inflation is majorly affecting the US economy. Many are concerned the US dollar will continue to decline and bitcoin is a way to hedge against inflation in the long run.
Store of Value
People look at bitcoin as a store of value in the long run. Bitcoin is often referred to as digital gold because like gold, it’s expected to hold its value over time. Bitcoin fluctuates in value with high volatility as time goes on, demand will become greater and its scarcity drives it to value up.
Grow their wealth
There is no other non-speculative asset out there that has the potential to grow your wealth without having a large sum of money, to begin with. The saying, “It takes money to make money” still remains true, but unlike building your wealth in real estate or the stock market, you don’t need hundreds of thousands of dollars to grow your wealth.
Decentralization
Bitcoin’s decentralized nature appeals to people who aren’t comfortable relying on banks and governments to control their money. This is especially true in countries that have less stable economies and have underdeveloped financial systems which leaves much of their population unbanked. Anyone who feels they don’t have much trust in their banking system invests in bitcoin because it is an asset that can be accessed without bank or government interference.
Earn passive income
Many choose to invest in bitcoin because it can be a form of passive income through staking, lending, and yield farming. It’s a hands-off way to make money without any further effort on your part and many investors find this attractive.
Bitcoin advantages
Back to the question at hand, is investing in bitcoin a good idea – what would make it good lies in its potentially large return on investment. From an investment standpoint, bitcoin has some attractive advantages.
Bitcoins’ volatile nature can create wealth for investors who are willing to take on the risk. Despite its violent swings in price, it is the greatest performing asset of the decade. For investors looking for a potentially high return on investment, bitcoin beats out the stock market by miles.
This is especially popular with millennials looking to grow their wealth and have plenty of time on their side to ride out the volatility before they need to access their money.
With a higher potential return on investment, even small contributions can go far. If you don’t have significantly large amounts of money to invest, a small portion of bitcoin has the potential to earn you more return on your investment than investing in the traditional stock market. Small contributions can mean more bang for your buck.
Bitcoin pitfalls/Bitcoin drawbacks
Bitcoin has its advantages but it is not without its drawbacks. When considering the question is bitcoin a good investment, the following factors can make investing in bitcoin difficult.
Not user-friendly
The process of investing in Bitcoin for those who are not technologically savvy can be tough to navigate. It is not yet easy and convenient enough for the everyday person to purchase and store their bitcoin. Though currently, Coinbase has made it easy enough to purchase, storing it is a little bit harder. Platforms have a long way to go before purchasing and storing crypto is as easy as buying coffee.
Requires active investing
This one is a bit debatable. It’s possible to approach investing in bitcoin passively as a long-term investment by contributing small amounts regularly particularly if your time horizon is long and you won’t need access to it in the short term.
But because its value fluctuates regularly and it’s affected by things like government regulations it’s beneficial to keep an eye on what’s happening in the market so you can make wise decisions regarding your investments.
Short track record of performance
Bitcoin has only been around since 2009. In contrast to the stock market which has been around for over 200+ years, we don’t have a whole lot of data to analyze its performance over time. This makes it harder to predict how it may behave over time which means making investment decisions with less information than traditional stocks.
Non-reversible transactions
Once you send a bitcoin to another person the transaction is non-reversible and final. This means if you change your mind or make an error, there is no way of unsending your bitcoin. Users must triple-check and be absolutely certain of the correct amount to avoid making mistakes.
Lose your bitcoin and it’s gone forever
If you lose access to your private keys and don’t have backups stored elsewhere you do not have the ability to retrieve your bitcoin otherwise. There are many stories of early bitcoin users who lose their password keys to their bitcoin only to never have access to them again.
Is bitcoin a good long-term investment?
Bitcoin can be a good long-term investment for those who don’t plan on using their crypto in the short term to give it time to grow and appreciate in value. Its fixed supply of 21 million bitcoin makes it a deflationary asset. This means that as demand grows, the supply can never be increased beyond 21 million. As demand grows over time, bitcoin will become more scarce and so long as there is demand it will become more valuable.
There are no guarantees, but bitcoin is expected to rise in price over the long term. With institutional investors getting on board, countries like El Salvador making it legal tender, businesses investing in bitcoin, and more and more retail investors like you and me are purchasing bitcoin every day, we are seeing increased adoption which leads to higher demand for bitcoin. Some analysts predict that bitcoin will be worth $500,000 and others more optimistic saying the price of 1 bitcoin will reach 1 million dollars. The reality is that no one knows for sure what the price of bitcoin will be.
Is it worth it to invest in Bitcoin?
If you can accept the risk, only invest what you’re willing to lose, and are willing to put in the work to learn how to invest and secure your crypto, then investing in bitcoin is a good idea and definitely worth it.
It may not be for everyone. But fortune favors the brave.
Best way to invest in Bitcoin
You can buy bitcoin from any cryptocurrency exchange and there are many But It’s best to go with a reputable exchange to make sure you’re safely buying bitcoin. Unfortunately, there are a lot of people trying to scam new investors so be sure to keep your eyes open and be aware of anything that doesn’t seem quite right.
Exchanges
Coinbase -I like Coinbase when you’re first starting out because it’s the most user-friendly platform to purchase cryptocurrency. Using it is pretty intuitive and has a similar experience to using a banking mobile app.
Crypto.com– A very trusted exchange that offers low fees. It’s not as easy to navigate as Coinbase, but with a little patience, it gets easier to use. The low fees are where this exchange shines.
Gemini- another popular and safe exchange to purchase bitcoin. It’s recommended for its high level of security and is great for beginners.
How to purchase Bitcoin
- Start with an exchange
- Link your bank account
- Purchase BTC
- Store in a wallet (cold wallet recommended)
Once which crypto exchange you want users to purchase your bitcoin, you will want to sign up for that platform. Whichever platform you choose, you will be asked to provide basic information, link your bank account, and or credit/card information as your payment method.
Next, you’ll want to select the amount you want to purchase. You can start small with something like $5, you don’t have to buy a lot and can work always your way up to larger purchases when you feel more comfortable with your investment.
Once you make your purchase, the last step is securing your bitcoin into your wallet. If you want to start with a hot wallet and you purchased your Bitcoin from an exchange like Coinbase, you can keep your bitcoin in one place.
However, I’d highly recommend you secure your bitcoin by storing it in a cold wallet like Ledger or Trezor. This allows you to store your bitcoin offline to prevent online hacks while also holding your own private keys. Holding your own private keys is important because it gives you full and complete control of your bitcoin.
These cold wallets cost about $150-$200 but the price of securing your bitcoin is worth far more.
Is it worth buying 100 dollars of Bitcoin?
A small amount of bitcoin like $100 is a low-risk way to get exposed to bitcoin. If you’re thinking about investing in bitcoin and want to try it out before considering investing more of your money $100 worth is a great starting point to get familiar with the cryptocurrency.
Is there a minimum bitcoin investment?
Buying bitcoin is very affordable and you don’t need to buy it in large amounts. You can start investing in bitcoin for as little as $1.
Summary
Investing in bitcoin is a good idea for people who are willing to take on the risk, and actively learn how to invest and store their investments safely. If any of bitcoin’s advantages sound appealing, it might be worth investing a small amount to start out.
But bitcoin is not for everyone. If you find yourself uncomfortable with bitcoin’s volatility or too skeptical of its future value, investing in bitcoin may not be a good idea.
No matter how you feel about bitcoin, always be sure to know what you’re investing in before you make your decision, and never invest more than you’re willing to lose.
Is Investing In Bitcoin A Good Idea And Is It Even Profitable?
Cassandra is a personal finance blogger who helps millennial and gen-z women level up their money game for financial freedom.
