Bitcoins As An Investment
Every day, more and more talk about Bitcoins is occurring, not only as a digital currency, but also as a financial investment. Many people are intrigued by this digital currency, but they also have reservations about it as well. For now we will discuss how to evaluate bitcoins as an investment.
There are Bitcoin & cryptocurrency exchanges, just as there are stock market exchanges. As October 2018, there are over 200 such exchanges and the largest Bitcoin exchanges by volume available to everyone includes, Binance (based in Malta), Coinbase and Gemini (based in the United States).
In order to open an account with the exchanges in the United States, you usually have to link a bank account to your Bitcoin exchange account, as you need to wire transfer the money for bitcoins to use in your account. Credit cards and PayPal are not options (at least not at the time of writing) because the transactions can be reversed very easily, whereas a wire transfer cannot be reversed. Truly it’s because, credit cards and PayPal fear the competition from digital currencies like Bitcoin.
Usually, only bank accounts from that specific exchange’s home-based country can be linked to the exchange account (for example, CoinBase, based in the U.S., only allows U.S. bank accounts).
Like the financial stock markets, bitcoins fluctuate in value against real currencies such as the U.S. Dollar, the Euro, the Japanese Yen, and others. One important distinction between Bitcoins and fiat currencies to this point in Bitcoin’s history is the fact that Bitcoin’s valuation has been much more volatile than fiat currencies.
In 2017, Bitcoin’s valuation went from $1000 up to about $19,300 within one year, a 19X rise in the price of the of Bitcoin, and as of this writing, Bitcoin’s price is $6450. That is virtually unheard of within the traditional equities market, let alone any “strong” fiat currency.
The reason that this sharp rise in valuation took place was because the CFTC (The U.S. Commodities Futures Trading Commission) and the CBOE (The Chicago Board of Options Exchange) announced Mid 2017 that they were going to open Bitcoin futures contract later that year. As a result, the price of Bitcoin skyrocketed to all time new highs. It was a lot of FOMO (Fear of Missing Out) and speculating from everyday “investors.”
This event reflects the major concern that most financial experts have about the currency. Many feel it is too volatile as an investment, leading to sharp price spikes and declines that are virtually not seen in other currencies, the equities market, or mutual funds. Most financial experts feel that the digital currency must stabilize in value and not be so prone to such rapid peaks and valleys for it to be taken more seriously as a solid investment.
The problem that many financial experts and institutions have with Bitcoin is that not enough is known about how the currency is mined and how it is “regulated”, so that the currency stays on track of having 21 million bitcoins in the year 2140.
While safeguards are in place to keep the currency on that path, there have been attempts to try to disrupt the network and give a few select bitcoin miners the ability to mine as many coins as they wish. There has also been concern that a group of miners could combine together, and work toward their mutual benefit, and to the detriment of everyone else on the network. This would occur by harnessing their mining power to get more coins for themselves and leave little to the rest of the network. This is known as a 51% attack and wouldn’t be beneficial to those bad actors, both practically and financially. You see Bitcoin has the most secure blockchain and network of any blockchain out there. No nation, company, organization or entity can take down Bitcoin, many have tried and have failed. It’s just too expensive and impractical to even try (that’s for another eBook).
It will take more time and a longer track record for Bitcoin to establish the trust of the financial community to where Bitcoin can be seen as a solid investment for most investors. Or you can set a path of your own and start investing in Bitcoin today. DO NOT wait on Wall Street to tell you when you can start buying and HODL’n (Hold on for Dear Life) Bitcoin.