Investment as an activity is one of the key pillars of modern economics and often is described as a component that helps in the churning of economic activities. Over the year’s humans have invested in assets that have shown a propensity to rise in value, be it real estate, commodities, bonds, and equities. A lot of investors have gone to the extent of investing in exotic products such as art and wines, considering them to have some intrinsic value.
But with changing times and rise of tech a lot of focus shifted to assets that had value based on their use and how many users it could generate which ultimately would lead to revenues in one form of other.
As the world slowly started understanding technology, the investments also slowly started moving to products that had intrinsic value, but these were not brick and motor things that could be seen felt or touched. And when Bitcoin and other cryptocurrencies came into limelight as investable items, the world just went berserk which a mixture of investing in the future and fear of missing out.
There is still a lot of debate whether cryptos are here to stay or will disappear as a fad, but we would like to put forward finer points that one needs to understand and consider before they put money into Bitcoin.
So let’s first discuss the most basic and burning questions in layman’s terms.
Why is Bitcoin Gaining Traction?
Bitcoin, since its inception, has been debatable investment proposition just like its founder Satoshi Nakamoto. A lot of people feel it’s a Ponzi scheme while there are others who believe it’s it to be a bubble as the market prices are way too high than its intrinsic value. While there have been various debates around the pricing and valuation of the Bitcoin, there is none who argues that Bitcoin is still the best, more secure and borderless payment system than any fiat.
And as the world is getting more and more educated about bitcoin and its associated advantages over the current system, the traction towards bitcoin investing is growing vertically. There is also anticipation that these numbers could rise further once the institutional powers jump in with their monies.
Why Invest in Bitcoin?
While there has been growing traction towards Bitcoin, there are a lot of fundamental reasons that make Bitcoin a great investment. Over the past decade, the existence of Bitcoin has walked the talk on a variety of reasons, and slowly it is becoming an investment case which is attracting a lot of new investors, including institutions.
- Bitcoin has proven its reliability: Any new system that is launched has always had a reliability issue as people take time to trust something that is new. Whether it was the banking system to payment apps, everything has gone through this grind. Even several altcoins couldn’t stand this test. But Bitcoin till date has extremely reliable. Last time, if anyone can track down, the bitcoin system faced an outrage was in 2013 when bitcoin mildly showed signs that it would fall apart. Post which there have been various mishaps but none could challenge the reliability of Bitcoin. In fact, the Bitcoin’s system has significantly upgraded itself with scaling updates like Segregated Witness (SegWit), Transaction batching, and Lightning just increasing its scalability and reliability.
- Lightning Network is just changing the game: While scaling has been an issue haunting the crypto industry, Bitcoin too was surrounded by dark clouds. But bitcoin has secured itself with the Lightning upgrade. To explain, Lightning Network upgrade is a technology which retains the basic fundamentals of Bitcoin but allows users to send coins instantly at low fees. Lightning allows users to create their payment channels, and these are then routed through the network which is made up of various payment channels. Lightning also enabled exchanging Bitcoins directly with different altcoins (currently Litecoin) slowly expanding to a variety of coins.
- Crypto is turning mainstream and Bitcoin is definitely the torchbearer: The 2017 bull market in cryptocurrency has made cryptocurrency investment and usage mainstream. While a lot of cryptocurrencies are doing fantastic work, Bitcoin is definitely the flag bearer of the crypto industry. Bitcoin has been the most recognizable and the most visible cryptocurrencies as the coin has been the oldest and most reliable of all the coins. Often referred to as the gold standard of cryptocurrency, Bitcoin has been a homely name in nearly all countries where it is legalized or not legalized.
1. Amazon vs. Bitcoin | Who is Better at Soaking the Shocks?
Often investment in Bitcoin as compared to the early-stage investment of dotcom days and has been often compared to the best technology stocks often termed as the FAANG Stocks (short form for Facebook, Apple, Amazon, Netflix and Alphabet’s Google). But if one has to pick up the best performing out of these companies and who also have survived the early days of dotcom it would definitely be Amazon.
According to the various data available on the internet, Amazon has grown over 500% in the last 5 years, whereas Bitcoin, using the same source has grown over 5500%. Arithmetically bitcoin has outnumbered nearly all the top-performing stocks when it comes to returns. But there is still a lot of scare around the new technology, and the limited education, unclear regulation and some sections of media have a big role to play in it. Passing time will definitely reduce the scare, but people need to really start understanding of what could be the future of technology.
2. Bitcoin vs. Gold | Who’s the Winner of ROI?
Another thing that Bitcoin is directly compared to is Gold. In fact, it has been termed as digital gold such has been the resemblance. But if one matches the return over a period of 5 years, Gold has just given been able to grow by 47.29% compared to an over 5500% of that of Bitcoin. Again a clear outperformance. This return, as well as certain characteristics that make Bitcoin slightly superior to gold has led to making Bitcoin replacing gold as a safe haven as most of the qualities of gold, are replicated in bitcoin in a digital form.
3. The Stability of Bitcoin (or say, Maturity of Bitcoin)
The volatility of cryptocurrency has been the scariest part of the crypto investment which has kept a lot of investors away because one wrong step and the investor’s money got wiped off of the table in no time.
While 2018 was a cruel year for Bitcoin, one thing that really worked for Bitcoin was that it become less volatile.
This stability was considered by many as Bitcoin’s maturity. Once the volatility dried up, and variations decreased, a lot of people started comparing it to the real traditional currency. This stability also is a sign that the exchanges now have deeper liquidity and a lot of depth, which means that the impact of panic based trading has been controlled to an extent.
Will lower volatility and the other factors mentioned is slowly making Bitcoin less risky and is bringing it closer to the traditional assets much to the comfort of the investor, especially the big fishes and institutions.
By the way, here’s the – Bitcoin’s price prediction for the future.
4. Buy and Hold | It’s Not a Short Term Play
With all points considered, one can be sure that Bitcoin is not a short-term play. If wealth creation is the goal of the investor; Bitcoin investment needs to be strategically and systematically managed. As all the fundamental factors that would influence the price of the Bitcoin will take some time to roll out and become mainstream.
Hence patience is the name of the game here. A short-term investor in Bitcoin is always going to be in a dilemma and is going to hang on the fence of fear of missing out (FOMO) on the upside and the risk of losing his money on the downside. While Bitcoin definitely would give short term opportunities, it is very necessary for the investor to understand that he will have to sustain through the period of peaks and troughs before this new piece of technology can actually make them wealthy.
5. Understanding the Risk | And Beware of Local Regulations
All points considered; Bitcoin is a great investment option. But no return is complete without the risks, and the same is the case with Bitcoins. Bitcoins have still a long way to be fully implemented and used for day to day purposes. So the price to reach anywhere towards its top will need some time.
Also, a lot of governments are still in a mood to ban Bitcoins as they challenge their respective fiats, and a lot of malicious characters still hold some bitcoins to keep everyone on toes.
While the risk is understood, Bitcoin is still very early and a lot of influencers have very different views on it. While some feel it to be superlative, there are others who feel it will take a lot of time for it to reach its glory like
Peter Thiel the Co-Founder of PayPal mentioned:
”Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative. But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence.”
While Richard Branson, Founder of Virgin Galactic, and 400+ businesses:
”Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off of volatility too.”
It is really important to get educated before one makes an investment in Bitcoin as it is still new, and it would take some time to create its impact. Till then it is advisable to keep your eyes and ears open, not only before investing but also after investing in getting the right exists.