Bitcoin started 2021 with a boom. Within the first few days, the world’s biggest cryptocurrency skyrocketed its value by almost $5,000, taking it above the $34,000 mark. In early February, after endorsements from public features and adoption by some institutions, Bitcoin jumped above the $50,000 mark with a market valuation of about $940 billion.
This caught the attention of many people, including those who didn’t think the cryptocurrency would amount to anything. Now, more investors are jumping aboard the Bitcoin bandwagon as the fear of missing out (FOMO) sweeps across the financial market.
However, being a volatile and highly speculative investment, most of the risk-averse investors are still not sure if Bitcoin will make a profitable addition to their portfolio. So, is Bitcoin really a good investment? What are the risks involved?
Read ahead; we will tell you everything you need to know about investing in the most valuable cryptocurrency. But first, what is Bitcoin investing, and how does it work?
What is Bitcoin Investing?
To understand what Bitcoin investing is, you will first need to understand what Bitcoin is.
Bitcoin is a decentralized digital currency that uses blockchain technology to validate transactions. The idea of cryptocurrencies is much like online banking, where you can receive or send money to other people without the need to withdraw it.
However, unlike fiat currencies, Bitcoin is decentralized. This means that they are not controlled or regulated by the government or any other financial authority. Bitcoin has the same value globally. It is not like traditional money that has varying values from country to country.
You can, therefore, transfer Bitcoin globally without being taxed or incurring any exchange rates. Bitcoin is also unique in the sense that it is both a currency and an investable asset like gold or real estate properties.
So, what is Bitcoin investing?
This is simply the act of buying Bitcoin then selling it when the price goes up or trading in Bitcoin CFDs.
Is Investing In Bitcoin Risky?
The cryptocurrency market is highly speculative and carries a lot of risks. Whether it is the price dropping precipitously, being hacked, or losing your bitcoin wallet, you can lose your entire investment in the blink of an eye.
The biggest risk factor in Bitcoin investment is price volatility. You can control not being hacked or losing your wallet but can’t control the price movement. Bitcoin has previously seen dramatic crashes that sent investors into mayhem as they watched the value of their Bitcoin stash drop to almost nothing.
For instance, in December 2017, Bitcoin’s price shot to almost $20,000, then quickly dropped to about $7,270 by February 2018. The price dropped even further to reach as low as $3,212 by December 2018.
This meant a massive loss to anyone who had bought Bitcoin during the price surge of December 2017.
Another big risk facing Bitcoin investment is cybersecurity. Being a digital asset, Bitcoin and other cryptocurrencies are highly vulnerable to hacking. The most targeted in this case are cryptocurrency exchanges, trading platforms, and individual online-based wallets (hot wallets).
The Mt Gox case is perhaps the most famous bitcoin hacks of all time. The Japan-based Bitcoin exchange was hacked twice, resulting in a massive loss of Bitcoin investment and customer information. In 2011, the site lost about 2,609 Bitcoins to a hacker.
Again in 2014, when Mt. Gox was the biggest Bitcoin exchange-handling more than 70% of Bitcoin transactions - the site was hacked, and more than 750,000 BTCs worth about $350 million were stolen.
Bitcoin is not regulated, so there is no insurance against these risks. The decision to invest comes down to how much you are willing to take on a massive price drop or a hack when it happens.
3 Common Ways To Invest In Bitcoin
Way back when Bitcoin was just starting with no hopes of getting any recognition, buying it wasn’t that easy. Most people just mined it or received some from friends. However, with the emergence of wallets and cryptocurrency exchanges, you can now buy and sell Bitcoin in a few clicks.
The three common methods of investing in Bitcoin right now are:
- Buy and hold
- Invest in a Bitcoin company
Method 1: Buy and Hold Bitcoin
This is the most popular way to invest in Bitcoin. We recommend buying and holding Bitcoin if you are looking for a long-term rather than a short-term investment. This method is as straightforward as it sounds. All you have to do is buy Bitcoin from an exchange, or a trading platform, then store it in your wallet (either online on the exchange or offline).
After that, you just have to wait until the price goes up then you can sell your stash. Buying and holding has its own pros and cons. On the one hand, the price can go up and make you massive profits. On the other hand, the price can drop and stabilize below the purchase price for a long time. This way, you would have to wait for a few years before you can sell your Bitcoin to make a profit.
For instance, Bitcoin rose from below $4,000 to above the $14,000 mark in 2019, then dropped below the $4,000 mark again in 2020. People who sold their investments as soon as the price spiked made a good profit. On the other hand, those who waited for the price to go higher had to endure a bearish 2020.
Again, people who bought Bitcoin for around $7,300 at the start of 2020 will now be selling it for more than $50,000, earning an outlandish profit.
Method 2: Trade Bitcoin
If you don’t want to wait for years before your investment can turn a profit, you can do short-term Bitcoin trading. This is where you take advantage of the daily Bitcoin price movement to make quick profits. You can trade in one of two ways:
- Spot trading: This is direct trading where you buy and sell Bitcoin based on the current price action. You can only make a profit when the prices are on an uptrend. But when the market crashes, you will have to sell your Bitcoin at a loss. This method of trading is profitable and carries fewer risks compared to buying and holding.
- CFDs trading: Unlike spot trading, you can make a profit with derivatives trading whether the price rises or falls. With CFD trading, you predict the next price action by placing a short or long position. You also have access to more trading features such as leverages that you can use to lower your risks and potentially make more profits.
Method 3: Invest in a Bitcoin Company
If you don’t want to directly hold or trade Bitcoin, you can alternatively invest in stocks of a company that holds Bitcoin or have Bitcoin-related services.
There can be a wide variety of these types of companies. You can either go with those that have added Bitcoin to their balance sheet, allow paying for services with Bitcoin, or directly buys and hold Bitcoin for investment purposes.
Good examples of these companies include Tesla and MicroStrategy, which recently invested heavily in Bitcoin. The electric car manufacturer bought $1.5 billion worth of Bitcoin and will soon be accepting the coin as payment for its cars and related services.
Financial institutions such as PayPal have also shown interest in Bitcoin. The company has announced that it will soon accept Bitcoin for transactions and is even acquiring Bitcoin-related companies. For instance, just recently, PayPal announced that it will be buying crypto-security firm Curv.
So, if you want to indirectly invest in Bitcoin, these are just a few examples of companies you should look out for. Of course, if you want closer conduct, you can invest in companies that directly deal with cryptocurrencies, such as exchanges or trading platforms.
Read Also: 5 Reasons to Invest in Bitcoin in 2021
Where to Invest in Bitcoin
Now that you know the different ways to invest in Bitcoin, we will show you where to invest for the best experience. In many ways, investing in Bitcoin is the same as you would do with stocks. So, if you are familiar with the stock market, you shouldn’t have any trouble navigating the crypto market.
To start investing, follow these steps:
- Open an account with a trading platform or Bitcoin exchange such as Coinbase
- Deposit some funds into your account. Make sure you don’t invest more than you can afford to lose. Since this is your first time, you can start with a small amount then increase gradually as you get to know the market better.
- Buy Bitcoin using your funds
- Hold or trade. If you want a long-term investment, you can hold your Bitcoin until the prices go up. Alternatively, you can take advantage of the price volatility to make quick profits by trading.
The steps may vary depending on the platform you are using, but the difference is not that significant. If you are not sure what to do, look for a ‘how to buy’ or ‘how it works’ section on your platform for specific instructions.
The most common platforms to invest in Bitcoin include:
Okay, now you know how and where to invest in Bitcoin. But is it worth your time? What are the risks and benefits associated with Bitcoin investing?
Advantages of Bitcoin Investments
It’s worth mentioning that Bitcoin is doing well for itself. Compared to 10 years ago, when it was still an alien concept, the cryptocurrency has now attracted not only individual investors but also traditional financial firms and institutional investors.
So, what makes Bitcoin stand out so conspicuously from the crowd of other cryptocurrencies? Let’s look at the top pros below.
Huge return on investment:
Compared to the other cryptocurrencies, Bitcoin has the highest profit potential. Over the past few months, the price has risen to unimaginable highs to make it one of the most valuable digital investments right now. People who bought Bitcoin a few years ago are now enjoying enviable ROIs.
Bitcoin, and most of the other cryptocurrencies, are highly liquid investments. This is mainly because of the widespread trading platforms, brokerages, and exchanges that make it super easy to trade Bitcoin for fiat currencies or other assets like gold.
Bitcoin is the first-ever cryptocurrency and has gained a lot of credibility along the way. This credibility has recently been boosted by widespread institutional adoption and the continuous rise of the price.
To trade in other assets like stocks or gold, you require a license or certificate to show that you are a certified trader or broker. However, with Bitcoin, you can easily buy and sell on your own without using a broker. You don’t need any license or certification.
Hedge against inflation
Bitcoin is immune to inflation. It is not like fiat money which is controlled and regulated by governments and banks. So, you don’t have to constantly worry about your Bitcoin losing some of its value.
Offers new financial opportunities
The cryptocurrency market is relatively young. This means it still has a great potential for growth, and new opportunities can be tapped from its price volatility.
Disadvantages of Bitcoin Investments
It is obvious that Bitcoin is headed for a bright future in the financial market. However, being a cryptocurrency, it is shrouded by a few risks that might make you reconsider investing.
Below are some of these risks:
Bitcoin price movement is highly unpredictable and often goes against expectations. This means you can experience a huge loss if you buy for a high price only for the market to crash. For instance, in 2017, the price of Bitcoin rose above the $20,000 mark. People who bought Bitcoin at this price point couldn’t sell it a few weeks later for more than $7,000.
Vulnerable to online hacking
Being a digital asset, Bitcoin is a major target for hackers, especially now that its price has gone bonkers. If you store your Bitcoin in an exchange, you might lose it to hackers and never get it back since these exchanges are not insured.
The lack of regulations for cryptocurrencies is two sides of the same coin. On one side, it allows freedom from governmental regulations, and on the other, it leaves you exposed to financial malpractices and fraud.
You can lose your wallet
Your online wallet can be hacked, and your hard drive can crash, or you can misplace it. If this happens, you could lose your entire investment in the blink of an eye.
How Much Should I Invest In Bitcoin?
Most investment experts will probably start by telling your one simple rule of cryptocurrency investment: Never invest more than you can afford to lose.
The amount you can invest, therefore, depends on your financial situation and your investment goals. Although Bitcoin is rising and could potentially hit $100,000 by the end of this year, there is also the possibility that it could plummet to its previous low points.
So, what should you do? We recommend a few things to keep at your fingertips:
- Study the market. Watch price movement and decide if you should invest more or less.
- Do your research and study previous price patterns. Although it is unlikely that these patterns will repeat, they form a good basis for an effective technical analysis.
- Look at current price predictions and what industry experts are saying. These can give you a clue of what to expect and how much you should invest.
Also, remember that different trading platforms have their own requirements of how much you can invest. If this is your first time, start with the minimum amount accepted, then move up slowly as you make more profits.
How Bitcoin Performed In 2020?
Bitcoin started 2020 hovering around $7000. Then due to the Coronavirus pandemic Bitcoin dropped below $5,000 in March 2020. Then it picked back up and reached $10,000 in July. On October 20, when the news that Paypal integrated Bitcoin on its platform was launched its price started increasing significantly. In December 2020 Bitcoin went above $20,000 breaking the record that was set in 2017. Bitcoin experienced a 300% increase in 2020 outperforming any other asset.
"We have already seen increased interest from institutional investors and corporations,” said Eric Peters, the founder, CEO & chief investment officer of One River Asset Management, in 2020.
"This is in part to the increasing view that Bitcoin can act as a strong hedge against inflation in portfolios, as well as potentially growing in price and consumer adoption substantially in the future," he added.
The reason that shifted the market trend of Bitcoin in 2020 was its increasing acceptance as a buffer against the imminent currency downturn resulting from trillions of stimulus-related coronavirus transfers from financial institutions and governments worldwide.
The thesis stems from the limitations on Bitcoin availability built into the blockchain network supporting it. Just 21 million bitcoins will ever be produced, unlike state currencies that can be distributed highly subjectively and at will by financial institutions, which could cause inflation. Bitcoin on the other side is inflation-free as there will never be more than 21 million bitcoins in circulation. So as demand increases, so will the price. That’s why it is considered a hedge against inflation.
The success of Bitcoin has prompted some observers to believe that in its 11-year history, we are in the middle of the third significant price surge, as investors gradually see it as a form of "electronic cash" rather than a risky investment.
Bitcoin reached an all-time high of $58,330 in February 2021. At the time of writing, the value of Bitcoin is $51,718. Moreover, Bitcoin's value and acceptance are projected to increase in 2021.
Bitcoin Price Prediction in 2021: How High Can the Price Go This Year?
One way to know if Bitcoin is a good investment for you this year is to look at industry predictions. We have prepared a detailed guide on Bitcoin price prediction in 2021 and for the next few years. So, if you want a more detailed analysis, you can check it out.
Otherwise, we will quickly do a recap here by looking at three types of analyses that might give us a hint of the value of Bitcoin in the future. These are:
- Fundamental analysis
- Technical analysis
- Sentiment Analysis.
Fundamental analysis looks at the different internal and external factors that could affect Bitcoin’s price in the future. In this case, we consider such factors as blockchain metrics, institutional adoption, and possible future regulations. These can help us determine whether the current price is overvalued or undervalued.
Looking at blockchain metrics and specifically the amount of Bitcoin that is currently in crypto exchanges and trading platforms, we can see that the number has gone down, according to various data. This means that most people are holding their BTC instead of selling. As a result, there will be increased demand for Bitcoin in the course of the year, and the prices will subsequently rise.
There are also more small-scale investors compared to large-scale ones meaning there is now greater distribution and decentralization of Bitcoin. This could hint at a price uptrend as more individual investors are looking to buy Bitcoin.
Technical analysis takes into account the price history and current trends to attempt and predict future prices. Recently, Bitcoin’s price surged and almost hit the $60,000 mark. This is a huge increase compared to where the price was a few years ago.
For instance, just last year in 2020, Bitcoin traded for as low as $4,944. Towards the end of the year, it hit more than $28,000 and is now playing above the $50,000 mark. This is a good indication for technical analysis.
There is a possibility - if current and past trends are anything to go by- that the price will increase further. This makes Bitcoin a worthy investment this year.
Sentiment analysis is simply studying what people are saying about Bitcoin or reacting to it right now. We can determine whether Bitcoin will experience a bullish or bearish market based on the current conversation around it. So far, social media and the publishing media are abuzz with news about Bitcoin.
Most of these are to the effect that perhaps this is the right time to invest. As the price continues to rise, Bitcoin is attracting more attention and getting more people to talk about it, which makes its sentiment analysis pretty high.
Data from different search engines also show that people are now searching for more positive bitcoin-related terms like “how to buy bitcoin” or “how to invest in Bitcoin”. This means that more people have trust in Bitcoin, and the bull market might just continue for a longer time.
People’s interest in Bitcoin keeps changing just as much as its price. The interest especially heightened during the COVID-19 pandemic as more institutions, hedge funds, and corporations found Bitcoin to be a great hedge against inflation.
This has skyrocketed its price and will likely keep doing so for the most of this year and even next year. The increase in demand will reduce the number of Bitcoin in supply, setting the price of Bitcoin on a parabolic surge.
Investing In Bitcoin In 2021: Is It A Good Idea?
In brief, while it's still in a rapid adoption period, Bitcoin has evolved and now provides considerable lengthy interest, although financial analysts have various views when it comes to investing in Bitcoin.
In 2020 Bitcoin has acquired tremendous traction among all sorts of investors, including fund managers to software to ordinary citizens trying to expand their investments.
2020 without any doubt has been one of the best years for Bitcoin. When Bitcoin was released in 2009 many people had doubts about it and few believed that there would come a day when Tesla would invest $1.5 billion in Bitcoin. Except for Tesla, we had other large investors such as Microstrategy, Square, Fidelity Investments getting involved by investing large sums. This has set the momentum for Bitcoin to grow in price in 2021 and in the upcoming years.
Bitcoin is already reached the $60,000 level and there are predictions that Bitcoin could reach as high as $100,000 in 2021. PlanB, the creator of the stock-to-flow model, believes that Bitcoin price is on track to hit anywhere in between $100,000 to $288,000 by December 2021.
Considering that we have large financial institutions involved now, Bitcoin could actually reach the amount predicted by PlanB. If this prediction turns out to be accurate, then Bitcoin is one of the best investment options in 2021.
Check Out: Could Bitcoin Be A Millionaire-Maker?
Conclusion: So, Is Bitcoin a Good Investment?
There are several factors you need to look at before deciding whether Bitcoin deserves a spot in your investment portfolio. The most important factor is your own investment goals. What do you hope to achieve by investing in Bitcoin? Do you want to invest in the short-term or long-term? How much are you willing to invest?
While there are good signs that the future might be bright for Bitcoin investors, this is not something you want to jump into blindly. Remember that Bitcoin sits at the riskiest end of the investment spectrum due to its price volatility.
We don’t know yet what the coin will become in the future. It might be a mainstream currency, nothing more than an investment asset, or merely a dramatic experiment. To avoid falling victim to the risks associated with Bitcoin investment, you need to do your due diligence, work with people with understand the market, and most importantly, don’t invest more than you can afford to lose.
Finally, you can try to spread your risks so that you don’t pin all your hopes on a single cryptocurrency. Try the other cryptos like Ethereum and see how they work for you. If you have the time, you can even do a combination of long-term investment and short-term trading.
This is actually the most popular way to invest in Bitcoin. Usually one will try to buy Bitcoin when its price is low, wait for it to increase and then sell it to earn the profit. Holding Bitcoin has proven to be profitable throughout the years.
In 2020 alone Bitcoin has grown 300% in price. In 2009 when Bitcoin was released it had no value then gradually it increased to an all-time high of $58,330 on February 09, 2021.
It must be mentioned that during this period 2009-2021 even though Bitcoin appreciated a drastic increase, it has also been extremely volatile, with its price moving up and down frequently.
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Virtual currencies are highly volatile. Your capital is at risk.
Pros of Bitcoin:
Due to the global development of trading exchanges, Bitcoin is currently one of the most accessible investment assets. With low fees, you can quickly exchange Bitcoin for fiat currency. If you're after short gains, volatility makes Bitcoin a perfect trading boat.
✅ Lower inflation risk:
Bitcoin is resistant to inflation, unlike traditional currencies, governed by their authorities. Basically, when a miner gets rewarded with Bitcoin, a new Bitcoin is added to circulation. This is a synthetic form of inflation because every four years the rate of this inflation is cut in half with halving.
✅ New opportunities:
Investing in Bitcoin and cryptocurrencies is comparatively new, with new coins being popular regularly. This breakthrough introduces volatile price fluctuations which can generate prospects for huge profits.
✅ Minimalistic trading:
Market trading requires a credential or warrant to be owned by you. To exchange equity assets, you must also go through a trader. Yet buying for Bitcoin is elegant and straightforward: just buy Bitcoin through a regulated cryptocurrency exchange. Unlike the payment of stock exchange orders, which can take days or even weeks, Bitcoin transfers are often immediate.
✅ 24/7 market:
One can buy Bitcoin any time of the day and any day of the week throughout 365 days of the year. Unlike the stock market, the cryptocurrency market is opened non-stop. It’s a great opportunity for those that have full-time jobs and would like to invest in Bitcoin on weekends for example.
Cons of Bitcoin:
Bitcoin price goes up and down often. While for day traders this might be a good opportunity to earn profits, some investors consider volatility as a weakness for Bitcoin. For example, the Bitcoin price was near $20,000 on December 17, 2017. Days later, it dropped to $7,051.
❌ Damaged reputation from the black market:
Bitcoin often was associated with black markets, including money laundering. If dark uses for Bitcoin surpass genuine ones over time, and the authorities can’t effectively stop it then Bitcoin might face marginalization. However, now that Bitcoin is being bought by companies such as Tesla and Microstrategy, such a thing is unlikely to happen.
❌ Not 100% safe:
Blockchain cannot be hacked but cryptocurrency exchanges can. The most famous case is the Mt. Gox exchange hack. Also, recently a UK-based crypto exchange EXMO revealed that cryptocurrency assets, including Bitcoin, Ripple, Ethereum, and others, were stolen from its hot wallets.
❌ Bitcoin mining uses a lot of energy:
One of the worst aspects of Bitcoin mining is its large energy consumption. According to an article by BBC in 2019 Bitcoin's energy consumption equalled that of Switzerland.
Is Bitcoin (BTC) a Good Investment?
Yes, Bitcoin is a good investment. The fact that large companies are investing in Bitcoin means that the cryptocurrency is headed in the right direction.
Buying low and selling high is smart when purchasing. Bitcoin is expected to increase in value and could reach $100,000 in 2021 according to experts.
Is it Worth Investing in Bitcoin?
Bitcoin is worth investing in. Since its creation, Bitcoin has produced mind-boggling returns. As a cryptocurrency, it has been the most outstanding one and was chosen as the investment of the decade by CNN.
Is it Smart to Invest in Bitcoin?
Right now, there is an explosion of optimistic energy about Bitcoin. There are 18 million bitcoins in circulation and there will only be 21 million maximum. When the limit is reached there will be no mining anymore. There will only be demand, which will cause Bitcoin’s price to increase. Therefore, yes it is smart to invest in Bitcoin.
Should I invest in Bitcoin Now?
Bitcoin is currently hovering around $50,000 and is expected to grow towards $100,000 by the end of 2021 according to analysts. In addition, there are predictions for Bitcoin to reach the value of $500,000 to 1 million in the future. Therefore, investing in Bitcoin now might be a good idea.
Where to Invest in Bitcoin?
You can invest in Bitcoin through cryptocurrency exchanges. eToro is a great place. It is a user-friendly platform and has many other features that will make your investing experience pleasant.