Is Bitcoin a Good Investment for a New Investor?
While it might seem like you missed out, the age of bitcoin has only just begun. Blockchain-based cryptocurrencies have been around for over a decade and in that time the price has crashed, soared, and everything in-between.
Before we get into the nitty-gritty of if it's still a good investment, you should first understand its appeal and why so many are heavily invested in it:
Bitcoin's appeal is simple:
It's Decentralized: Any two people, anywhere in the world can send each other money without the involvement of a bank, government, or any other financial institution. This transaction can be completed in minutes.
It's Deflationary: Only 21 million Bitcoins will only be produced. That means that by 2140, all the Bitcoins ever created will be out on the market. This is starkly compared to the US dollar, which has no end to how many can be printed out of thin air.
It's Transparent: Bitcoin is traded on a public network. Every transaction involving Bitcoin is tracked on a technology called the Blockchain. In simple terms, Bitcoin's Blockchain is like a bank's ledger and records every transaction back to the first-ever completed. Although users can access details about transactions, they cannot access identifying information about the users making those transactions.
It's Backed By Code: Arguably Bitcoin's strongest appeal is that it's backed by unchanging laws. Bitcoin's inflation rate was set in stone by code, not humans. This code is only changeable through a vote where the entire network has to agree to change it. This has failed several times.
Bitcoin was created by Satoshi Nakamoto - an unknown person or team - who outlined the technology in a 2008 white paper. Following the 2008 housing crisis, where banks were unfairly bailed out by the government after crashing the economy, Satoshi believed the world needed a smarter, more trustworthy currency to believe in.
"What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party," wrote Nakamoto in a white paper introducing the open-source technology.
Bitcoin isn't mainstream yet
If you're reading this, take a deep breath. In through the nose and out through the mouth. It might seem like the Bitcoin investing train has long left the building, but truth be told it's just getting started.
Think of Bitcoin as digital gold. It's a hedge against inflation, which is desperately needed now that the Federal Reserve printed 25% of US dollars ever created in 2020 alone.
If there's more supply there is less demand. When Germany hyperinflated its dollar following WWI, Germans were sweeping bills into the sewers. A loaf of bread cost millions because the Germans suspended the gold standard and printed so much. Suspending the gold standard is something we also did under President Richard Nixon.
Hyperinflation can happen to any country. If it happens in the US - like some economists are predicting - then the results could be devastating. If you think Bitcoin FOMO is bad now, just wait when the prices of goods increasingly go up.
Meanwhile, following Elon Musk's and Tesla's bullish investment in Bitcoin, it's safe to say that crypto is on the precipice of going mainstream. It still, however, has a few hurdles to overcome before it goes mainstream. Like becoming an easily tradeable asset for example.
You're early in this space still. So take another deep breath and let it out through the nose.
Where Can I Buy Bitcoin Safely?
At the time of this article, the current price of one Bitcoin is 48,623.60 (An increase of 226% in 2020). You can buy Bitcoin in many different ways in 2021, but here are a few popular ones:
Or earn interest on your cryptocurrency at BlockFi
Where Do I Keep My Bitcoins?
If you buy Bitcoin through a brokerage or any of the aforementioned fintech apps, you do not own a physical [or virtual] coin. You are investing in the value of Bitcoin the same way you'd invest in a stock.
However, if you buy Bitcoin through a cryptocurrency exchange then you will be issued a digital wallet. Your wallet will be given a key [imagine an email address for simplicity] so you can send or request money to any other wallet across the world.
You can also buy a physical-digital wallet which is an even more secure way to store your Bitcoin. Unlike bank accounts, stored Bitcoin isn't insured by the FDIC. I learned this lesson the painful way when I sent $2,000 in Bitcoin to a scam.
Stocks to Invest in Crypto
Crypto mining group Riot Blockchain (RIOT) has exploded this year and won't stop if the price of Bitcoin keeps going up. Gemini creators the Winklevoss twins predict Bitcoin will one day be worth $500,000 a coin as it overtakes the market cap for gold. Take from that what you will.
Think of Bitcoin mining like solving a Rubix cube. After you solve the cube - which in reality is a complex math equation that requires tremendous processing power - the cube releases a prize.
That prize is Bitcoin.
The more times the cube is solved, the more complicated it gets. And the more complicated it gets the rarer Bitcoin becomes. People then pool their resources to solve the puzzle together - and thus mining groups are born! It's game theory in a nutshell. Granted, this is a gross simplification of the process.
I invest in Riot Blockchain which gained over 1250% in 2020 and Marathon Patent Group (MARA) which grew 1333%.
Will Bitcoin Be Deregulated?
Regulators could simply ban all institutions and intermediaries from transacting with cryptocurrencies. It just happened in Nigeria last month.
What's more likely, in America at least, is that the government will start tracking customer information and increase security requirements for cryptocurrency exchanges. Think a new age IRS, but for cryptocurrency.
Bitcoin will be regulated in some shape or form. There will be a lot of kicking in screaming at first. However, if the regulations aren't harsh, and ultimately protect Bitcoin as a legitimate asset, as well as make it easier for average people to invest in it (e.g. a Bitcoin ETF) then regulation will strengthen Bitcoin.
Still, if we look at the regulation of social media, for example, then we know that the government will always be behind the technology. I don't see that changing anytime soon.
Is it Still a Good investment?
Yes. Don't let the volatility distract you.
Following Musk's $15 billion investment, institutional investors have loaded up on Bitcoin. Billionaires like Chamath Palihapitiya and Mark Cuban are even touting the benefits of altcoins and digital art backed by NFTs.
What I would do is dollar-cost average into both bitcoin and Ethereum. This means instead of sinking $1,000 into one of these assets you invest $50 every day. This allows you to get a nice rounded average of the price. It's another tactic that institutions use to invest.
Bitcoin and Ethereum will do well for two reasons: 1) The tech will increasingly improve making them more valuable assets 2) They will be an incredible hedge against inflation in a time when the US is money printing like mad.
Cryptocurrency will become a generational asset; something you give to your kids and they give to their kid's kids. An investment today could change your life and future lives.