A collective insanity has sprouted around Bitcoin over the last decade. It's hard to predict whether this cryptocurrency will become the global reserve currency or a store of value as widely accepted as gold. The thrill of riches or ruin leaves some investors wary, but others want to chase the chance for massive profits from investing in Bitcoin. Bitcoin is certainly a revolutionary technology, and it's much less risky in 2022 than it was in 2012.
After becoming legal tender in El Salvador in 2021, other countries may look to copy this move to attract innovation, while others might ban it entirely in an attempt to save their fiat currency or clear the way for a central bank digital currency. Despite the doom and gloom of the 2022 bear market, Bitcoin has solidified its spot in the global geopolitical climate, and the 2020s may be the year of massive adoption. This has led investors to wonder if Bitcoin is a good investment. The answer to this question varies, depending on who is asking it.
Bitcoin could be a good investment if it fits your risk tolerance and your general market outlook. The history of the cryptocurrency market is actually rather predictable on longer time horizons. Bitcoin and Ethereum have traded in relatively regular cycles and both have recovered from every major crash (not including the most recent, yet) and subsequently reached new all-time highs.
Start with our guide to learn more and make your own judgment if Bitcoin is a good investment for you.
The History of Bitcoin
Since its inception, Bitcoin was the 1st digital asset to beget the current ecosystem of cryptos. The release of the whitepaper describing the tech just after the 2008 financial crisis was a quiet start to the cryptocurrency revolution. For quite a while, it grew an underground following of investors who saw its future as a possible replacement to the physical monetary system. Now Bitcoin has become a household name as institutions and governments develop ways to serve their customers growing demand for exposure.
Similar to how the internet was once a speculative investment, Bitcoin has received similar criticism. In reality, Bitcoin‘s current adoption rate outpaces that of the internet's in 1998, and millions of people now own Bitcoin. And the spread at which its adoption is spreading seems to only be increasing.
In 2021, El Salvador became the 1st country in the world to make Bitcoin a legal tender; Paraguay and other small countries look to follow suit. El Salvador is also the first and only country to have Bitcoin in its treasury. As of late 2022, El Salvador has roughly 2,400 Bitcoin. President Nayib Bukele has not been shy about announcing his purchases on Twitter.
Is Bitcoin a Good Investment Despite the Risk?
Similar to any speculative investment, buying Bitcoin obviously carries significant risk. As the traditional finance world realizes Bitcoin's potential for disruption, they must choose either to adopt cryptocurrencies or face irrelevance. Its volatility risk is one of the major factors determining whether Bitcoin is a good investment but it isn't necessarily good or bad. The personal decision to invest in Bitcoin comes down to your appetite for risk and your perspective on the future of humanity. For example, Russia has stated they are looking into cryptocurrencies to lower their dependence on the US dollar. Bitcoin has the potential to disrupt the US dollar in a massive way, and it is simply too big to be ignored at this point. If this disruption is successful, Bitcoin could be a fantastic investment.
The main reason a traditional investor may want exposure to Bitcoin is to hedge against inflation and potentially the collapse of the fiat-based economy. Bitcoin's volatility is a concern to may investors, however volatility is expected to decrease forever as institutions and governments enter the market with long-term interest.
Where to Invest in Bitcoin
Bitcoin is available from a multitude of centralized cryptocurrency exchanges. The safest exchanges are U.S. based, which also means you'll need to comply with the SEC's know your customer (KYC) guidelines. For tax purposes, making an exchange account will require inputting your personal information including your address and social security number. Once you've got this handy, you're ready to get started.
Here are the steps to invest in Bitcoin:
- Open an account with a cryptocurrency exchange.
- Connect a bank account and deposit funds into your exchange wallet.
- Buy Bitcoin (BTC).
- Buy a wallet (optional).
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Another great option to buy Bitcoin is Wunderbit. The platform lets you buy and sell Bitcoin, Ethereum and altcoins at the best rates on the market. Plus, users can fund accounts with crypto or buy cryptocurrencies with a credit or debit card. Another cool feature that Wunderbit has that makes it unique is its ability to identify 'dirty' Bitcoin. This is Bitcoin that may have been involved in hacks, money-laundering, or other illegal activity that may be at risk of being seized by government officials.
Bitcoin Technical Analysis: Fear and Greed Index
The fear and greed index can be a useful indicator of the cryptocurrency market's sentiment. The general sentiment of the market can be a useful factor when you decide if Bitcoin is a good investment for you. Historically, times of the greatest fear have generally been bullish indicators and times of greed are often bearish indicators. The Fear and Greed index isn't perfect and doesn't always forecast the future well but it can be a good tool in making an educated guess.
Advantages of Bitcoin Investments
The overwhelming performance of Bitcoin — as a currency and investment — has attracted traditional and institutional investors alike. They are all asking: Is Bitcoin a good investment? To be fair, it offers you several advantages over traditional investments.
- Liquidity. Bitcoin is arguably 1 of the most liquid investment assets due to the worldwide establishment of trading platforms, exchanges and online brokerages. You can easily trade Bitcoin for cash or assets like gold instantly with incredibly low fees. The high liquidity associated with Bitcoin makes it a potentially great investment vessel if you’re looking for short-term profit. Digital currencies may also be a long-term investment due to their high market demand.
- Lower inflation risk. Unlike world currencies — which are regulated by their governments — Bitcoin is nearly immune to hyperinflation. It still undergoes inflation but at a predictable rate that is halved every 4 years. The blockchain system is infinite and there’s little need to worry about your cryptos losing their value.
- New opportunities. Bitcoin and cryptocurrency trading is relatively young — new coins are becoming mainstream on a daily basis. This newness brings unpredictable swings in price and volatility, which may create opportunities for massive gains.
- Minimalistic trading. Stock trading can be a tedious process covered in red tape and can only be done during specific market hours. You must also go through a broker to trade a company’s shares. But Bitcoin trading is minimalistic: simply buy or sell Bitcoin from exchanges whenever you want, 24 hours a day, 7 days a week. Bitcoin transactions are also instant — unlike the settlement of stock trading orders, which could take days or weeks.
Disadvantages of Bitcoin Investments
Bitcoin may be the future of monetary exchange, but it is equally important that you are aware of the concerns surrounding cryptocurrency investing. Listed below are a few things that could make Bitcoin a bad investment. Balancing the pros and cons is often the most important thing an investor can do.
- Volatility. The price of Bitcoin is always rippling back and forth. If you happened to buy Bitcoin on December 17, 2017, the price was $20,000. Weeks later, you couldn’t sell your investment for more than $7,051. While you'd be doing great now, holding for years at a time is not a viable option for all investors.
- Threat of hacking. While Bitcoin's blockchain has never been hacked, individuals can still get hacked if they give out sensitive information, such as their private keys. Also, it's not uncommon for lesser-known exchanges to be hacked. For best security, use a hardware wallet like the Ledger Nano X that stores your digital assets off the internet on an external device.
Can Bitcoin be Exchanged for Real Money?
Bitcoin can be converted to cash in a couple of different ways. You can sell Bitcoin on a cryptocurrency exchange like eToro or Crypto.com. The cash will be deposited directly into your bank account. This is a simple way to convert your Bitcoin to cash, but you must remember that the price of a Bitcoin is changing all the time. Yes, you may need cash, but you might be kicking yourself a few years down the road if the price of Bitcoin skyrockets over and over again.
Bitcoin ATMs are expensive, but if there is one near you, you can exchange your Bitcoin for cash there. However, these ATMs often charge hefty fees, so you're most likely much better off using an exchange.
So, Is Bitcoin a Good Investment?
With institutions adding Bitcoin to their balance sheets and El Salvador officially making Bitcoin legal tender, it's looking like Bitcoin could be the future of currency, or at least an accepted store of value. However, with so much volatility in the market, risk-averse investors are still hesitant to buy Bitcoin, much less any other cryptocurrency.
Since Bitcoin isn't controlled by a central entity, its monetary policy is much more sound than any government. Ark Invest CEO Cathie Wood describes Bitcoin as a "rules based monetary system", as Bitcoin's monetary policy is set by the parameters of the code. With governments printing out more money than ever before in light of the pandemic, investors are looking for alternative investments to hedge against inflation. Many are turning to Bitcoin to do so, facilitating adoption of cryptocurrency over the long-term.
Is Bitcoin a good investment? It can be, so long as you do your research and invest wisely. Investors might, however, turn Bitcoin into a bad investment if they try to treat it like any other asset.
Frequently Asked Questions
Is Bitcoin a good investment longterm?
Over Bitcoins existence, we have seen it grow exponentially. If history repeats it self, which we have seen multiple times now, Bitcoin tends to reach new all time highs every 3-4 years.
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