Bitcoin is the currency of the moment. Its vertiginous rebound is causing many people to value the possibility of investing in it. But there are a few things you should know and meditate if you intend to bet on this asset so as not to leave all your money in the middle of the shopping fever.
The bitcoin, virtual currency, is a digital representation of value that is neither issued by a central bank, nor by a public authority, nor is it linked to a legally established currency. It does not have the legal status of currency or money, but it is accepted by people as a means of exchange.
This does not mean that it is not legal, operating with bitcoins in most countries is legal provided that the currency is allocated to an activity that is also legal. It only means that no one is responsible for it: when there are no assets of a currency, central banks will put more and thus the availability is guaranteed; but when that currency is not legally recognized, if it does not remain it simply does not remain: it is by default limited to the total of assets that the individual entities have transformed themselves and are selling. And, anyway, there is one more peculiarity with bitcoin: it has a cap of 21 million.![]
A limited currency and condemned to be small
Bitcoins are created from an algorithmic problem solving process known as mining. In this system the number of bitcoins is limited to 21 million coins divisible up to 8 digits. This finite issue is a mechanism to avoid inflation and maintain its value over time.
Although it is not expected to reach the maximum for much, when it does, it will be solved by reducing the reward of the mining process or by increasing the divisions. What it means in practice is that bitcoin will not grow and will grow infinitely in value: it will reach a point and it will stagnate or descend by its own configuration to rise again, and thus in cycle throughout its useful life.
The importance of being limited is that, thinking bigger, the market for virtual currencies is relatively small and of low depth. The total market capitalization of bitcoin is approximately 180,000 million dollars. It seems a lot, but it's the same as worth only a company like Coca-Cola. What's more, by putting bitcoin in front of all the available assets in which it can be invested, it represents less than 2%. This is the reason why there are large investors who think that there is still too much fuss over an insignificant asset at the moment.
A risky and unpredictable investment
The limitation to an ordinary person who wants to invest a small amount in this currency does not affect him, at least for the time being. It only helps us to put the market in perspective. But there are other things to worry about, such as speculating that we do not get it right, that the exchange house we use close overnight or that we steal the keys, without which, given the total anonymity of this currency , we would no longer be the owners of anything.
It can be argued that you have no intention of losing or letting yourself steal the keys. But it is true that no one has ever intended to lose or be left to steal your wallet with your credit card inside, and yet it happens relatively often. With the bank there are ways to prove that you are you, and that the money in the account is yours; With cryptocurrencies the thing is not so simple.
In addition, web pages open and close every day, no one ensures that the elected exchange does not decide to close the business tomorrow. It is for example the case of Bitmixer, one of the most popular bitcoin mixing platforms, which operated since 2014 processing approximately 65,000 BTC per month and closed only by arguing "an ideological change".
A volatile investment
The truth is that the escalation or collapse of the price of bitcoin is difficult to predict. The variation of prices can be manipulated by means of massive purchases or the paralysis of these at key moments precisely because it is so small: a few huge investors influence a lot and can take it off enormously like leaving it on the ground in a few minutes.
In short, it is far more volatile than other assets, such as stocks or currencies. In principle, the currencies of a country do not go down and they go up large amounts because, yes, something has to happen to them and that can be "assumed". With bitcoin everything can change second by second and everything is out of the control of the small inverter.
In spite of everything I want to invest, what do I do and how do I do it?
If we still want to invest, we must go to a bitcoin ATM or register in an exchange office to exchange euros for virtual currencies by credit card or bank transfer. In principle you can change them at any time in reverse with the same system. And it will make sense to do so whenever our speculation or mining has worked and we end up with more than what we put in the beginning.
This is the main philosophy that seems simple but it is not: we buy at a price and we mine to increase it (something similar to planting and expect to collect fruit) or store and wait for the value to rise by itself (store the seeds until it arrives the winter and there is a shortage).
What to do and what not to do when investing in bitcoins
The randomness of cryptocurrencies is unpredictable, huge price fluctuations, instantaneous collapses and brutal increases occur regularly. Therefore, our modus operandi should be even more cautious than we would have with any other investment: it is not advisable to invest more than we are willing to lose, or of course nothing that is not ours or to borrow to do so.
It is also necessary to control uncertainty and impressions, more if possible than with other assets. When we invest in shares of a company that we like in itself we are not making a rational choice: we would have to invest in the one that most likely gives us money, not the one that we like. But from time to time we can be right, because if we like him, it's because he does it well and as a result that can keep his actions up. With the bitcoin these hunches do not have to comply.
Finally, take it for granted that you will not get rich. It is feasible to extract returns from small amounts by speculating due to market pressures and a bit of luck. Sometimes you will win and sometimes you will lose if you play small. But if you invest a lot you could lose a lot and not recover. Therefore, and in conclusion, control your money, understand the risks, which are high, and if you invest, always be very cautious.