Should You Add Bitcoin to Your Investment Portfolio? Here’s What You Should Knowby Fintechnews Switzerland June 1, 2021
The popularity of Bitcoin has been on the rise ever since the idea behind the digital currency was penned down in 2009 by an anonymous person under the pseudonym, Satoshi Nakamoto. The idea behind creating Bitcoin was to have a virtual currency that was not controlled by any regulatory bodies.
A currency that provided complete anonymity to the users, yet the transparency to easily identify and track transactions. Although 12 years later, it still cannot be called a currency in the true sense, Bitcoin and other cryptocurrencies have become one of the most lucrative forms of investment. Stories of people turning in huge profits overnight are not unheard of and play a huge role in driving the interest behind investing in Bitcoin.
However, while it does have the potential of making you a fortune, things could easily go south. The value of bitcoin has a huge dependence on perception and is known to have been affected even by the tweets made in support or against it. So the question is, should you add Bitcoin to your investment portfolio? Investing in Bitcoin can be quite risky, but it can also be extremely rewarding. Here are a few points that will help you make your decision.
What is Bitcoin?
To put it simply, Bitcoin is a virtual currency and is the first one of its kind. It is based on blockchain technology which allows it to be completely decentralized, yet extremely secure. It is important to understand that Bitcoin is a type of cryptocurrency. There are various other cryptocurrencies like Etherium, Dogecoin, and Litecoin, to name a few. While their prices are often interlinked, they are not the same. This is an error that a lot of people make and when they refer to Bitcoin, they tend to refer to cryptocurrencies in general. However, that is not the case.
Each cryptocurrency is different and Bitcoin is simply one of them. These currencies are traded on virtual networks and through cryptocurrency exchanges. It is only via these exchanges that you can buy Bitcoins using your traditional currency and vice versa. Bitcoin is now also accepted as a form of payment by various companies, including Lamborghini.
Why Must You Invest In Bitcoin?
Despite the turbulence that can often be observed in its value, Bitcoin has emerged as one of the most profitable investment platforms over time. Bitcoin recently observed a huge surge in its price, hitting a maximum of about 60,000 dollars in April 2021. Many advantages come along with investing in Bitcoin to convince you to join the bandwagon and here are some of them.
1. Complete Autonomy and Anonymity
Bitcoin offers you complete control over your currency. It offers investors the option of deciding how to spend their money as it is not regulated by any regulatory financial bodies or government organizations. It also offers them complete anonymity and any transactions that are made via Bitcoin, although verifiable, will never reveal the identity of the involved parties easily, unless the parties decide to do so.
Bitcoin is one of the most liquid assets you can purchase. This makes it great for making short-term investments. Some of the top cryptocurrency exchanges allow you to buy bitcoins in exchange for traditional bank-issued currencies and even against gold. Selling them is just as simple and is done on the same platforms. The transactions made through the Bitcoin network are peer-reviewed and are carried out all around the globe, because of which, trading occurs around the clock and you can buy and sell your Bitcoins as and when you like.
3. Low Transaction Fee
Although there is some transaction fee that goes hand in hand with Bitcoin trading, it tends to be lower than what is involved in the trading of other financial assets. Making international transactions and transfers with Bitcoins also holds an advantage over traditional currency because, with traditional currency, you will have to pay the transfer charges, and the currency conversion changes as well.
4. Trading Knowledge Is Easily Accessible
Reliable information and knowledge regarding Bitcoin are easily accessible through online platforms and social media networks. Numerous reliable discussion forums can help you out as you set off making your initial investments in Bitcoin.
5. Low Inflation Risk
Not being regulated by banks or other regulatory bodies makes Bitcoin immune to inflation. So although there will be fluctuations in price, they will be based on the demand and supply. Bitcoins will not lose their value over time due to inflation. So, holding Bitcoins in your cryptocurrency vault is not the same as holding money in your account. Unless invested properly, money in your account will lose its value with time due to inflation, however, Bitcoins will not.
Drawbacks of Investing in Bitcoin
Investing in Bitcoin does come with its fair share of drawbacks and you must consider these as well before diving in. The biggest drawback of Bitcoin is that it uses a lot of energy. The Bitcoin network now uses more energy than Argentia. In addition, the prices of Bitcoins fluctuate a lot and are influenced by various factors. Although, this arguably makes it a great option for making quick profits through short-term investments. There is also the threat of hacking.
While buying Bitcoins from your cell phone or your laptop may be incredibly convenient, it can also make you vulnerable to hackers. Finally, the biggest disadvantage of Bitcoin is probably that it has not been accepted as a currency around the world. So although the motive behind the development of Bitcoin was the replacement of traditional bank-regulated currency, it has not reached that stage yet. However, amongst all the cryptocurrencies in existence, it is probably the closest to being a true form of currency.
While arguments can be laid against Bitcoin as a form of currency, its advantages as a highly profitable investment asset cannot be debated. Yes, its prices fluctuate a lot and the fluctuations are often unpredictable, but that is part of the game. Plus, that is exactly where you stand to gain by using Bitcoins as an investment. If you track the time history of the prices of Bitcoin, it is easy to see that while numerous ups and downs can be identified, year on year, the lowest point that the value of Bitcoin reaches increases. This makes it good not just for short-term trading, but an attractive option for long-term investment as well.