Should You Invest In Bitcoin?

Get the facts about trading Bitcoin before you start. Discuss investment strategies, review market research, and get real-time updates

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Investing in Bitcoin: What to consider before you buy Bitcoin

Bitcoin is the first cryptocurrency in the world, launched in 2009. It is also the first wide-scale, real-world application of blockchain technology. Bitcoin (BTC) is a decentralised network which uses a public ledger to approve transactions, eliminating the need for third party approval (such as a bank). It also operates free of a governing body, such as a central bank, and all changes in the network require consensus from its members. While initially BTC value was extremely low, priced at fractions of cents, it picked up steam over the years, reaching price levels in the thousands of dollars for a single Bitcoin token and a market cap in the hundreds of billions.

The Bitcoin chart often displays extreme volatility, having short-term price spikes and tumbles. Sometimes, when the Bitcoin price is on the rise, more people are inclined to buy Bitcoin, fueling its positive run further. On the other hand, when the Bitcoin value is on the decline, it can prompt existing investors to sell their Bitcoin and push prices down. Moreover, Bitcoin is considered the bellwether of the cryptocurrency space, so it can often generate industry-wide trends.

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Who should include Bitcoin in their portfolios?
  1. Cryptocurrency traders: Bitcoin is the most well-known cryptocurrency, and therefore, many crypto traders buy it as part of their cryptocurrency portfolio.

  2. Long-term investors: While still considered an extremely volatile and risky market, Bitcoin has shown tremendous price increases over time. Therefore, those who believe the overall trend will be positive could consider a Bitcoin investment.

  3. Day traders: BTC prices can often have significant price swings over the course of a few hours. Traders can try to take advantage of these movements in an attempt to generate short-term profits.

  4. Blockchain enthusiasts: Since Bitcoin is the first major application of blockchain technology, those who have faith in the technology and its potential impact on the tech and financial industries, could consider buying Bitcoin.

What drives Bitcoin’s price?

Bitcoin is a highly volatile instrument that has experienced tremendous price movements over the years, sometimes gaining hundreds of percentage points or crashing significantly over a relatively short period of time. While it is less affected by happenings in mainstream markets, it can be affected by a variety of factors relating to the crypto space, the blockchain industry and by regulatory issues. Here are a few examples:

  1. General crypto trends: In late 2017, cryptocurrencies were heavily debated in the media. People, who previously hadn’t heard of the crypto, started asking how to buy Bitcoin. This sparked a massive crypto bull run, which peaked in December of 2017 when nearly all the major cryptos reached record highs.

  2. Mainstream market volatility: Bitcoin and the rest of the crypto industry operate separately from other markets. Therefore, when mainstream markets are on the decline or become too volatile, some traders and investors turn to the crypto market as an alternative.

  3. Traditional financial institutions: Over the years, there have been several attempts to introduce Bitcoin into mainstream markets in the form of ETFs, futures contracts and other financial instruments. Since many of these instruments require regulatory approval, traditional regulatory bodies, such as the US Securities and Exchange Commission (SEC), could have a major impact on the market, whether they approve or deny such instruments.

  4. The blockchain industry: Some experts believe that blockchain has the potential to revolutionise many areas of the technology and financial industries. Bitcoin is the first and one of the largest blockchain networks in the world, and as the technology becomes more widespread, more people might be inclined to buy BTC.

Bitcoin: Miners and Forks

The way Bitcoin works as a decentralised network relies on its members, some of which are miners. Miners allocate computing power to carry out transactions and are rewarded a small fee for each transaction. Since these processes require computing power and electricity, Bitcoin miners are usually those who invested significant sums of money to build mining computers.

However, miners have another key role. When the Bitcoin blockchain network needs to undergo a change or an upgrade, it needs the approval of its members, which can signal whether or not they approve the change. If the change is significant and makes the platform backward compatible, it is known as a hard fork. When not enough participants approve the change, a hard fork results in a parallel blockchain network being created.

Such was the case with the Bitcoin Cash hard fork in August 2017. With this hard fork, a group of developers intentionally rolled out a protocol they knew would be rejected by some members of the network, hence creating a hard fork and a new cryptocurrency. Bitcoin Cash became incredibly successful, reaching a market cap in the billions and becoming a top 5 crypto.

History of Bitcoin

Bitcoin was founded in 2008 and launched the next year by an unknown person or persons using the pseudonym Satoshi Nakamoto. While initially it was only adopted by blockchain enthusiasts, the fact that it enabled users to carry out transactions quickly and while maintaining their anonymity, made its popularity grow exponentially over time. The first purchase of physical goods using Bitcoin ever made was 10,000 BTC for two pizzas, in 2010. The same pizzas would be worth $190,000,000 in January 2018.

As Bitcoin became more popular, numerous other cryptocurrencies were created. Some were built on the same technology, while others created blockchain protocols of their own. However, despite growing competition in the crypto space, Bitcoin has maintained its place as the world’s largest crypto by market cap for many years.

Conclusion: Can Bitcoin remain the king of cryptos?

Much has happened in the crypto industry since Bitcoin was the only cryptocurrency in the world. Growing rapidly in number, there are thousands of cryptos today, many with significant market caps and trading volumes. However, Bitcoin remains at the forefront of the industry, if only due to its sheer, massive size. As the industry progresses and diversifies, there is a possibility Bitcoin will lose its place as the largest crypto. However, such a scenario seems very unlikely in the near future, and Bitcoin could very well maintain its spot as the world’s top crypto for years to come.

*Cryptocurrencies can fluctuate widely in price and are therefore not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.

*Past performance is not an indication of future results. Your capital is at risk.

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