As we move forward into the future of the digital age, more and more people are recognizing the increasing value of digital currency. The most prevalent being Bitcoin. So it’s understandable if you are considering getting involved. If this is all new to you, however, then it’s best that you educate yourself about what Bitcoin is all about and how it works.
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Recently, the value of Bitcoin tokens has skyrocketed. Exactly one year ago, Bitcoin’s price per token closed at $5392.31 (USD). Currently, it’s priced at $56,341.05. That’s a rise in value of over 900%! But does this mean you should jump on board and invest in Bitcoin right now? Here are some things you need to consider before making that decision.
Weighing the Risks and Rewards
The massive increase in Bitcoin prices right now looks very attractive to investors. But as with any investment, you need to be aware of the risks involved in purchasing Bitcoin. While the potential for high yield rewards is always very possible, the value of cryptocurrencies can be very volatile. During the period of 2017–2019, Bitcoin prices went from around $1,000 to over $17,000 but then fell all the way back down to about $3,000.
All investments involve some degree of risk, especially in the short-term. However, if you do decide to invest, make sure to do so safely. Diversify your portfolio by not investing in Bitcoin alone. Also, never invest money that you can’t afford to lose. Keeping an eye on market trends and any big news stories can help you get ahead of the curve as well. When Elon Musk’s Tesla recently purchased $1.5 billion in Bitcoin, it caused prices to soar.
Bitcoin’s Volatility Index Rating
The Cryptocurrency Volatility Index tracks the range of returns and predictability of Bitcoin investments and determines how risky it is to invest in by projecting its performance over the next 30-day period. While gains have been on a fairly solid rise over the last year, Bitcoin has historically been very volatile. Any negative news involving cryptocurrency tends to send the public into a panic, causing prices to plummet.
The perceived value of cryptocurrency can also fluctuate quite a bit due to its production being limited. Like gold, Bitcoin maintains a lower supply to its demand, making it a static asset. In contrast, fiat currencies issued by governments can have their production increased or decreased to control inflation and economic health. When Bitcoin is measured against fiat currencies, anytime the latter shows signs of strength or weakness, investors will view the former as more valuable and invest in it accordingly.
Increasing Market Competition
While Bitcoin was one of the first major cryptocurrencies to hit the market, new competitors are being created at an increasing rate. Litecoin, Dogecoin, Ethereum, and Cardano have all followed Bitcoin’s lead, and with the current boom in cryptocurrency adoption and investment prices, more companies will likely attempt to get a piece of the pie. But if Bitcoin becomes too expensive, investors may look to buy alternative cryptocurrencies, which could eventually cause Bitcoin to crash.
There are many cryptocurrency exchanges that allow users to change their cryptocurrencies from one type to another. According to the list of top exchanges curated by Observer, some platforms allow trading in as many as a hundred different cryptocurrencies. Seeing as how digital currencies are rapidly gaining popularity, it’s safe to assume that this number will only continue to increase in the years to come.
Lack of Widespread Adoption by the Public
Tech-savvy users have been using cryptocurrency for years now, but it’s still misunderstood by the general public. When the average citizen can look in their wallet and pull out a physical twenty-dollar bill, the idea of cryptocurrency being “mined” and traded entirely by computers can put them off adopting it as their primary choice of currency. Although they might see a use for it when buying certain goods or services online, the majority of commonly-used vendors like Amazon and Walmart don’t accept Bitcoin.
Governments can also be a problem. Even if more businesses began to accept cryptocurrencies, it’s likely that governments would step in and attempt to implement regulations on trading. It’s difficult to see a point where they would allow cryptocurrencies like Bitcoin to become a serious and widespread alternative to their own fiat money. If government regulations do end up occurring, the price of Bitcoin is likely to crash.
Ultimately, Bitcoin is like any other investment. It’s impossible to predict exactly what’s going to happen in the future, so there are no safe bets, especially with cryptocurrency. But as market trends are currently in favor of Bitcoin, it’s likely that their prices will continue to rise, at least for a while. If you have the money to invest in Bitcoin and can afford to part with it if the market crashes, it’s a viable investment option that has the potential to pay off handsomely in the years to come.