Should I invest in Bitcoin?
Bitcoin has generated a lot of interest from investors who want to explore alternatives outside the stock market. Its turbulent value and stories of incredible returns have hit the headlines, leaving many confused about whether Bitcoin is a savvy investment.
Is Bitcoin safe to invest in?
If by safe you mean legitimate, Bitcoin is safe to invest in. It uses secure cryptography and blockchain technology to keep your details private and virtually unhackable.
Using a legitimate exchange platform like eToro, Coinbase or Binance will stop you falling prey to fake crypto exchange sites. We’ll explain more about how to buy Bitcoin in a moment.
So, while it is a risky investment, it is a legitimate one that has above-board investment channels.
Bitcoin jargon buster
Before considering a Bitcoin investment, it’s wise to get to grips with some of the main terms you’ll hear in conversations about cryptocurrency and Bitcoin.
Here are some terms you’ll commonly see when reading about Bitcoin and cryptocurrency in general:
Fiat currency — A government-issued currency that isn’t tied to and doesn’t derive its value from a commodity like gold or silver. All major currencies across the globe, including the US Dollar, Euro and Sterling, are fiat currencies
Wallet — A virtual or physical place (like a flash drive) to store your cryptocurrency
Token — A virtual currency token or denomination of a cryptocurrency. It’s a digital representation of the crypto you’ve purchased, and the space it occupies on the blockchain
Blockchain — A digital ledger of information that keeps a secure record of cryptocurrency in ‘blocks’, which cannot be edited or altered in the future. No single person has control of the blockchain, and every user has an equal and secure part to play
Fungible token — identical tokens that have an equal worth, like cryptocurrencies, that can be used for commercial transactions
Pros and cons of Bitcoin investment
Even though Bitcoin has been very up and down in value, the broad trend for the cryptocurrency’s price is a steeply upward one.
Since its inception, its price has risen greatly, standing at around $19,000 at the time of writing.
Though it’s nothing compared to its highs, Bitcoin has never dipped in value below $5,000 since early 2020 (during the most uncertain days of the Covid-19 pandemic) and remained consistently above $3,000 since 2017.
The issue for investors is that, while Bitcoin is unlikely to ever be worth nothing or disappear entirely, there’s an equally high chance that buy-in prices will never drop low enough again (and subsequently soar) to make a profitable investment feasible.
Holding Bitcoin also allows you to make online transactions and purchase assets such as NFTs — though many NFT sellers are moving to accept cash, if they aren’t already.
While Bitcoin can generate extremely high returns for investors, there is absolutely no guarantee it will for you.
Its value can plunge by thousands of dollars in just a single day, and it is more sensitive than fiat currencies, which are only dramatically affected by landmark political or economic events.
Bitcoin’s price is so sensitive that it can be affected by a single high-profile person; Elon Musk’s announcement that Tesla would no longer accept Bitcoin for its products reduced the value by almost $7,000.
For the average person, it’s also an unrealistic investment; most don’t have upwards of $20,000 lying around that we can afford to invest and potentially lose.
Bitcoin is also illegal (either implicitly or absolutely) in 51 countries, including China, Vietnam, Kuwait, Qatar, Egypt and Cameroon.
Even if you don’t plan to make a purchase using Bitcoin and simply want to hold it as an investment, we’d strongly recommend against investing if you live in these places to stay on the right side of the law.
Is investing in Bitcoin a good idea?
There is no such thing as a risk-free investment, but some are inherently at the riskier end of the scale.
All forms of cryptocurrency sit right at the top of the risk scale, alongside actions such as seed funding and investing in startups.
Their track records are as yet unproven or in their infancy and the majority of people are yet to get on board with the concept.
There’s a much higher chance that you could lose the entirety of your investment than if you invested in something much lower risk (and likely lower return) like an S&P 500 tracker fund.
Investing in a tracker fund that generates returns based on the performance of the world’s biggest companies, for example, is low risk.
Even though past performance doesn’t determine future returns, these companies have a proven record of success and a plan for how to reliably replicate this in the future.
As Bitcoin is the most well-established, valuable and widely used cryptocurrency, it’s comparatively lower risk than newer offerings — yet still incredibly risky in the broader world of investments.
As it matures and becomes even more widely used and recognized, Bitcoin’s risk could decrease slightly — or increase, if its price becomes even more volatile.
Where to invest in Bitcoin
You can invest in Bitcoin via an exchange trading platform. The most popular in the US are Coinbase and eToro, but you’ll need to complete a few steps before you make your investment.
First, sign up to your chosen platform. Next, choose a wallet to store your cryptocurrency and connect it to your bank account.
This may be offered by your exchange, or you may need to install software or an app on your chosen device (known as a hot wallet) or purchase hardware that can securely store your Bitcoin (known as a cold wallet).
Some exchanges also ask you to complete a KYC verification, which needs your ID and for you to answer a few anti money-laundering questions.
Once you’ve done this, you can go ahead with your investment.
The future of Bitcoin
Just like its journey so far, the future of Bitcoin is hugely uncertain.
Countries such as El Salvador and Japan have made the currency legal tender, and you’ll need cryptocurrency to buy some virtual assets such as NFTs (though this isn’t the case for all).
Even though the novelty factor of Bitcoin may have worn off in terms of pushing its price to extreme highs, it doesn’t seem like the major cryptocurrencies such as Bitcoin and Ethereum will cease to exist anytime soon.
Some smaller currencies, such as the stablecoin Luna, have collapsed, but they use a different system than Bitcoin.
However, some of the world’s greatest business minds, such as Warren Buffet and Bill Gates, believe that cryptocurrency is a “speculative bubble” that will eventually burst completely and lose most or all of its value.
Even if Bitcoin continues to exist and becomes a much more mainstream way of carrying out transactions, we cannot say what the future holds for Bitcoin as an investment — and, truthfully, nobody can.
Kate has written for leading publications and blue chip companies over the last 20 years.