In a year with plenty of surprises, Bitcoin has once again surged to record highs. Many people are starting to take notice of the cryptocurrency again, wondering if now is a good time to be investing. I’m going to tell you everything you need to know about investing in this high-performing, rollercoaster asset.
What is Bitcoin?
Essentially it’s a digital currency (cryptocurrency), but it’s also much more. Created in the aftermath of the 2008 financial crash, Bitcoin’s design is to be the complete antithesis to Wall Street and the big banks.
The concept: to create a currency outside the control of any single government, bank, or person. This decentralised structure allows transferring wealth in a fairly unregulated manner.
This lack of regulation initially attracted quite suspect users which gave bitcoin a bit of a bad reputation.
How does it work?
Bitcoin has an interesting structure. It operates using blockchain technology and a distributed ledger system.
This means that there is a complete record of all transactions taking place. The record cannot be tampered with because there is no single controller.
This creates a high-level of trust and security. So the Bitcoin network is like a big, open-sourced accounting ledger.
The bitcoins themselves are rewarded to miners who use computing power to solve complicated equations and verify the transactions.
Why has the price gone up so much?
A number of reasons have led to Bitcoin’s record value:
- There is a limited supply of bitcoins (21 million), and increased demand has driven up the price of the cryptocurrency.
- Some are looking to diversify and spread risk, treating the cryptocurrency like digital gold.
- Bitcoin’s limited supply makes it a deflationary asset because more cannot be created. Large borrowing and printing of money during the coronavirus pandemic has people wary about incoming inflation.
- It has weathered the storm and shown resilience these past few years. Institutional investors are showing greater interest and just a fraction of this money is seriously big bucks.
Is it a good investment?
Purely looking at the numbers, Bitcoin has been one of the best-performing assets of the year.
Whether Bitcoin is a good investment is debatable.
The price swings alone are enough to give any hardened investor a heart attack. That being said, Bitcoin has always recovered and looks more and more like it’s here to stay.
The question you should really be asking is whether or not it is a good investment for you.
Investing in Bitcoin
If you’re looking for high-risk investments with high potential returns, investing in cryptocurrency might be for you.
My view is that a small amount in a portfolio gives enough exposure to the potential growth. Because of the lack of regulation, common advice is to only invest money that you’d be happy to lose.
If you like to play it safe with your investments, I would steer clear. Bitcoin’s performance might make it seem like a must-have in any portfolio but it carries serious risk.
If you’d like to find out more about the risks, check out our article on reasons to be wary of investing in Bitcoin.
Bitcoin might be a good addition to your portfolio if you’re happy with extreme levels of risk and volatility. But it should only serve as a diversification tool.
Investing in Bitcoin isn’t for those with a low tolerance for risk. It’s quite a complex asset and not very attractive for those who like straightforward investments.
If you’re looking for investing inspiration, take a look at our article on alternative ways you can invest your money.
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