In recent years, the cryptocurrency Bitcoin has garnered lots of attention, and for the very first time in early March of this year, passed the price of gold. It increased to $1,28.09 per unit, as compared to $1,231.50 per ounce for gold. During the past 6 months, it has seen a huge rise and is now sitting at well beyond $16,000 per unit.
Even if you really haven’t considered this currency very much over the years, its growth has been very impressive recently. The price was at about $400 in 2015. Its massive success has encouraged people all over the world to start investing in bitcoin and using it as a different form of insurance within a very volatile market. Although the nature of this currency doesn’t really lend itself very well to regulation, there has been some interest expressed in turning bitcoin into a viable currency for investment options that are more traditional (such as exchange-traded funds) – which could possibly make bitcoins be a more attractive option for investors.
Like any other investment option, of course, there are both pros and cons to investing in bitcoin. So if you considered investing in bitcoin during these very uncertain economic times, then keep reading to learn about both the benefits and risks of bitcoin.
One of bitcoin’s most attractive aspects is that it isn’t attached to any government or traditional financial institution. Although the currency can fluctuate and has, the factors that do affect its worth are not directly centralized with a bank or government. Another reason why the value of bitcoin might be hard to drive down over the long term is due to the fact that it can be increased whenever demand is high – a new currency is created by the bitcoin system at a fixed rate. Eventually, it will encounter a 21 million unit cap. Value is created by this scarcity, just like with gold, and most likely this will continue. However, unlike gold, bitcoin is easy to transfer, which does fit is very well with evolving payment methods. This made it one of the top short term investments in 2013 and that’s also true now.
Bitcoin runs on blockchain technology, which is a new method for storing information. A distributed ledger system is used. Bitcoin traders are able to stay anonymous, and it is a decentralized system, meaning that it is a lot harder to hack into it. However, the technology isn’t infallible, and in the past, there have been bitcoin hacks that have taken place.
The risks associated with bitcoin investing are pretty basic: bitcoins are inherently volatile. There are also no legal protections backing them up. Bitcoin fluctuates in value and these can occur more suddenly compared to government-backed currencies. In addition, there is a lot of uncertainty regarding bitcoin’s regulatory future – will governments be intervening to place limits on bitcoin? Will its cap be removed ever, which would allow inflation to take place? Will a different cryptocurrency come along to overtake it? There are no easy answers to these questions at the moment. And despite the fact that blockchain technology appears to be catching on due to its superior security, all digital currencies have concerns about hacks. There are also scalability issues. Transactions currently take 20 to 40 minutes, and as an increasing number of transactions take place, this can cause major problems. We continue placing strains on our wi-fi infrastructure, and the bitcoin system might have difficulties scaling due to that.
Should You Invest In Bitcoins?
Now that you know more about the pros and cons associated with bitcoins, should you invest in them? That question is tricky since each investor is unique. A majority of experts do not advise you to solely invest in bitcoin, but instead be part of having a diversified portfolio. If you are willing to take on the risks associated with an unregulated currency such as bitcoin, then this type of investment could provide you with healthy returns over the long run. It will all depend on how much risk you are willing to take. There is no definitive answer. It is completely up to you whether or not you would like to take a chance with investing in cryptocurrency.