Is 2021 a good year to invest in Bitcoin?
You want start trading crypto in 2021 but don’t know where to start. This article will equip you with the fundamentals to make an informed decision on whether or not you should invest in crypto.
What is Bitcoin & should I invest in it?
As the first of its kind to emerge, bitcoin is the most widely known and is largest by market cap. It is also viewed as “digital gold” as it shares many of the same attributes as gold due to its scarcity, durability and being on par with gold as a store of value and medium of exchange.
Bitcoin is believed to increase in value because its limited supply (fixed at 21 million coins) as opposed to fiat currencies, which supply is unlimited since currencies controlled by central banks can be produced at the whim. With its cut-off date set at 2041, no more bitcoin will be produced and added to the world economy after that year. It is also proven by the endorsement by investors which saw bitcoin’s value rise more than 63%, reaching an all-time-high of $64,863 in 14 April and settling to over $50K as of writing. This marks a meteoric rise from $0.0008 to $0.08 per coin in July 2010 when bitcoin first started trading.
In 2017, market price per bitcoin has surpassed the price of one troy ounce of gold for the first time. It has achieved more year on year returns than FANG stocks ( Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOG) ). Many investors also predict bitcoin to surpass fiat currencies to become the first international currency in the future.
Pros of trading crypto
Liquidity and medium of exchange
Liquidity refers to how much an asset’s purchase or sale will move its overall price. Like gold, bitcoin is very liquid and can be exchanged for fiat or commodities like gold, even goods and services. It can also be sent anywhere across the globe with a very low transaction fee, thanks to the blockchain technology.
Bitcoin is decentralized which means there is no centralized repository to store investors’ personal information that can be hacked into and manipulated. Blockchain protects users against fraud, hardware failures and potential theft. However, high-profile theft has occurred on exchanges hence it is important you invest on an exchange with a good reputation and impeccable security credentials.
Cons of trading crypto
Volatility and Speculation
Volatility refers to the up and down movements in the value of an asset.
Bitcoin is known for being a volatile asset driven mainly by speculations made by investors who speculate on the rise and fall of bitcoin’s price to go up or down to make profits. The speculative bets subsequently create a buy-sell cycle characterized by the sudden influx of money or sudden outgo.
Its volatility is also affected by news developments which include geopolitical events, government statements about regulations and prominent individuals and corporations. For example, Elon Musk’s tweets that suggest it would no longer accept Bitcoin as a payment method for Tesla vehicles. Concerns surrounding the environmental impact of mining coins and supporting crypto transactions on a large scale as well as news of China’s crackdown on banks completing crypto transactions also affects the price of bitcoin negatively.
The value of Bitcoin and other cryptocurrencies are sensitive to regulatory uncertainties. When governments discuss oversight and regulation of cryptos, it often negatively affects investor confidence. Some cryptocurrencies are banned in countries and associated with taxes while most countries embrace and welcome crypto adoption. On top of that, the EU and other world-leading governments are working to develop an ideal regulatory structure to pave the way for the future of crypto. This proves bitcoin has a promising future to become the first truly international currency.
How to invest and trade cryptos safely
The best investments gains are made by investing in the ones that will keep growing overtime, like Bitcoin.
To mitigate risk and volatility, find a high security exchange to start your trading journey. Learn about crypto history and terms to get familiar with the market and stay abreast with crypto developments and trends.
Start by investing small at regular intervals over time, start with as little as $10. You don’t have to buy a full bitcoin. This will help build your portfolio and lower risk by giving you an understanding of an average price overtime. At the same time, diversifying your investments is a good way to hedge against potential risks associated with plummet in value of a single crypto investment. In other words, spread your investment around to cover several large-cap and growing currencies.
“Invest only what you can afford to lose”. For every investment you make, there is a risk of not getting the returns you expect. While taking more risks (investing with more money gives you a higher chance at scoring high returns, you have to ask yourself what would happen if your investment decreases in value. This is when having at least three to six months’ worth of savings set aside as an emergency fund is important.
Other things to be mindful of are the fees associated with trading and the ability to use bitcoin and/or your choice of cryptocurrency for regular purchases and bank transfers.
Remember that cryptocurrency won’t turn you into a millionaire overnight. The wise approach is to keep learning by research, trading experience and to view bitcoin as a long-term investment.