Cryptocurrencies are now regarded as the new digital asset in the world of finance and investment. This has resulted in a rush to own these digital currencies. Most people don’t know whether this crypto-rush will deliver great returns or turn out to be a crypto-bubble. As bitcoin is the eldest of all cryptocurrencies, it is the most popular, the most expensive and the most preferred among them. In this article, we will study the future prospects of Bitcoin so that you can make an informed decision on whether it should be part of your investment portfolio or not.
Is Bitcoin a Good Investment?
Buying bitcoin is like buying any other speculative instrument. The price of this cryptocurrency is prone to fluctuations. Also, you should know that no central bank backs bitcoin, which means there is no regulatory oversight and it has no intrinsic price value. However, this also means that banks can’t manipulate this currency by changing policies and its price truly reflects its demand.
Bitcoin does offers store-of-value to its owners as it’s the most widely accepted cryptocurrency. Many investors think owning bitcoin is better than owning gold as bitcoin is easier to buy, store and sell as compared to gold. Moreover, bitcoin has more utility than gold. No wonder it’s called ‘the digital gold’. As of March 2020, the market capitalization of bitcoin was $170 billion and that of gold was $9 trillion. If bitcoin goes on to have market capitalization of $9 trillion, then cost of one bitcoin will be $400,000. That would be a huge gain from the current $11,000+ price.
US dollar over the years is losing the status of world reserve currency. Even the IMF has called for a digital currency for transactions among various central banks. In such a scenario, bitcoin offers an easy alternative to traditional currencies for payment of goods and services, especially for international payments. Therefore, acceptance and ownership of bitcoin is bound to increase in the future.
Is this Right Time to Invest?
The global financial crisis caused due to covid-19 has made investors interested in unconventional investment assets. Stock markets are not going to rebound for a few years as corporate results are showing long-term declining trend with falling profits. So, investors are already looking at other asset classes. In these difficult times, bitcoin is one good investment as it’s completely uncorrelated to any other traditional investment asset class.
Many prominent financial experts like Robert Kiyosaki, Mike Novogratz, etc. have recommended putting a part of your investment portfolio money into bitcoin. JP Morgan, in its Feb 2020 report said that crypto market is maturing and institutional investors are increasing their participation in it. This report also suggested that for coming years bonds will not be preferred as a hedge for equity portfolios.
Therefore, after reading all the information given above if you think bitcoin is a good investment, then waiting for the right entry point is unwise. As the prices of bitcoin keeps fluctuating it’s better to enter and save yourself from the remorse of missing out. However, before buying bitcoin read about some more advantages and risks involved with this cryptocurrency.
Advantages of Investing in Bitcoin
1. Liquidity: There are so many brokerages, exchanges and trading platforms for bitcoin that it has become one of the most liquid investment asset. The trading fee is also very low for bitcoin when compared to other assets like gold. Therefore, whether its short-term trading or long-term investment you can easily buy bitcoin.
2. Inflation hedge: Bitcoin is completely immune to inflation as it’s not controlled by any central bank. Also, because of the infinite blockchain system you should never worry about bitcoin losing its value over time.
3. New asset: Bitcoin is a relatively new investment asset when compared to other assets usually preferred by institutional investors. Therefore, you have a chance to enter at an early stage with a lot of head room ahead.
4. No paperwork: Anybody can own bitcoin without requiring a certificate or license. All bitcoin transactions are instant and no settlement is required from any exchange, unlike buying or selling shares.
Risks of Investing in Bitcoin
1. Volatility: The most prominent risk involved with investing in bitcoin is the volatility in its price. As this currency is not regulated by any bank you can experience wild swings in its price. During the end of 2017 and start of 2018, the price of bitcoin moved from $20,000 to $7,000 in few months. Therefore, you must invest small portion of your investment portfolio in it and must keep a close eye on its price movement.
2. Hackable: Probably, the most dangerous threat to bitcoin investors is from hackers. Since, all bitcoin transactions happen online it’s possible to track its traders. Sometimes hackers use these traces to find bitcoin wallets with low security and hack them to steal their bitcoin investment. The FDIC doesn’t insure bitcoin exchanges. So, the responsibility of securing your bitcoin is completely yours.
3. Lack of regulation: As said before, bitcoin market is not subjected to any credible regulation. This has made this cryptocurrency susceptible to many types of malpractices and frauds. Although many investors think that unregulated bitcoin protects it from the government policy interference, but they conveniently forget that it exposes bitcoin to fraudsters.
4. Losing wallet: Crashing of hard driver or corruption of your wallet files can lead to losing your bitcoins. This is the silliest way of losing your bitcoin investment, but it can turn you from a wealthy investor into completely bankrupt in just a few seconds. Therefore, you must protect your bitcoin wallet from such accidents as there is no way to recover the lost coins.
Bitcoin is easy to acquire, transfer and store. This currency is largely unregulated, has a huge price volatility and poses higher risks as compared to government currencies. However, this high-risk investment has the potential to offer huge rewards. Therefore, you must treat bitcoin as an exotic investment and allocate only that much part of your investment portfolio, which satisfies this criteria. Always remember that Bitcoin is a relatively new investment asset and its most optimistic proponents are unsure about its future price value.