Bitcoin is the most common and used cryptocurrency all over the world. Its market capitalization is the largest compared to other cryptocurrencies. However, it is highly volatile which is why it is always advisable to invest in Bitcoin only when you are in a better financial position or have a high-risk tolerance.
To avoid risk exposure, many investors invest in different investments. If you are planning on giving Bitcoin a try, ensure you don’t invest more than 10% of your portfolio in it.
That said, this article will take you through some important information about Bitcoin that will assist you in making an informed decision on whether it is still a good investment or not.
Advantages
- It provides an opportunity to get high returns.
- Bitcoin is decentralized. Meaning the users can choose to store their profits in a centralized platform.
Disadvantages
- Once a transaction is made, it is irreversible. There have been many cases of people losing millions of dollars due to forgetting or losing their wallet logins.
- Crypto exchanges do not have insurance protections that are provided by the Federal Deposit Insurance Corporation, and the Securities Investors Protection Corporation
- Since this market is highly volatile, the prices can fall drastically. For example, in 2022, the prices have fallen by 75% and the sad part is there is nothing anyone can do to stabilize the price, unlike other financial exchanges that have circuit breakers that temporarily stop trading until the market stabilizes.
- Many other Crypto platforms have collapsed. Platforms like FTX, and FTX.US have most recently filed for bankruptcy.
What category of investment is Bitcoin?
After almost a decade, no one is quite sure what kind of investment Bitcoin is. For starters, unlike other businesses, it does not generate profit from selling products or services, and you cannot be issued with dividends also, it does not have a centralized authority governing it like the CEO or board of directors.
Gary Gensler, the chairman of the Security Exchange Commission, in June 2022 said on CNBC that some cryptocurrencies “have the key attributes of a security while others, specifically Bitcoin, are a commodity”
A commodity is something you can buy and sell. It includes grain, milk, or raw materials such as metal. Their prices are regulated by the Commodity Futures Trading Commissions which is also responsible for regulating foreign currencies trading.
The debate on what kind of investment is Bitcoin is still ongoing. However, some people are sticking to their belief that it is a currency. One that you can pay for and buy goods with. While some businesses have opened their doors to bitcoin, there are still many investments that do not support Bitcoin. That said, there are chances it will be a new asset class in the future.
Bitcoin and its volatility
Since its launch in 2009, Bitcoin has come a long way to become one of the most valuable cryptocurrencies in the world. Its growth and reputation can hide the fact that one can easily lose money from investing in Bitcoin.
People that bought Bitcoin for a dime in 2010 earned profits big time. Back then, the market was not competitive and the risks were less. For the people who bought the coin in 2013, the losses on their investment were massive. Others even lost 80% of their investments. It took another three years for the market to stabilize.
In 2018, there was another fall in the market that lasted a year. 2021 and 2022 have recorded another fall this time by 50%.
As we have seen, investing in Bitcoin is like a gamble where the chances of winning are as high as losing. Over the years, the market has always stabilized after a fall but the market can reach zero especially when other crypto fall and users sell off their coins.
