You’ve heard the stories – investors and everyday citizens getting filthy rich (seemingly overnight) after investing in Bitcoin. And just as more and more people got comfortable with owning crypto assets and trading in the crypto market, Bitcoin crashed, costing investors millions overnight.
But, despite Bitcoin seeming like an appealing investment, many investors and market experts saw this coming. After all, what goes up also comes down, which is why Bitcoin has become infamous for its market volatility. Even so, more and more investors are continuing to diversify their portfolios by incorporating Bitcoin, aiming to ride out the crash in the hopes of doubling their investment in the future. But is it the right move for you? In short – if your stomach can handle it. Read on as The Finance Opinion team helps you navigate your options before investing in a volatile market.
However, what goes up also comes down, which is why Bitcoin has become infamous for its market volatility. Even so, more and more investors are diversifying their portfolios by incorporating Bitcoin. But is it the right move for you? Read on as we help you weigh your options before investing.
What is Bitcoin?
Bitcoin was established in 2009 and is a type of cryptocurrency – ie: a digital/virtual currency – that removes the need for third-party involvement in financial transactions. Since its establishment, it has gained popularity as the most well-known cryptocurrency in the world.
So, How Does Bitcoin Work?
Bitcoin is powered by a technology known as “Blockchain,” which organizes transactions into “blocks” that are “chained” together to create a digital record of every transaction.
Instead of involving a third-party (aka: a bank) in transactions, Bitcoin uses a peer-to-peer internet network to confirm purchases directly between users. And, rather than keeping the currency in a bank, each Bitcoin is instead stored in a digital wallet, accessible through any WiFi enabled device.
How Does Bitcoin Make Money?
Bitcoin makes money through mining – a process where Bitcoin network users work with peers to verify transactions and confirm they are consistent with other transactions that have been completed in the past. This peer-to-peer mining process ensures users can’t spend a Bitcoin they don’t have or have previously spent.
As part of this mining process, new Bitcoins are created and offered as a reward to the miners validating these transactions. And, like many other assets, Bitcoin can be bought and sold with currencies like the U.S. dollar, with the price depending on the current market value (which fluctuates day to day).
When Investing in Bitcoin Makes Sense…
First and foremost, investors that see the biggest return in Bitcoin are the miners themselves. That’s because they’re doing the up-front work to “mine” the currency, so they’re able to redeem the full reward. However, even if you’re not a tech-savvy developer or crypto expert, everyday people can also invest in the cryptocurrency and reap the rewards.
Incorporating cryptocurrency into your portfolio can help diversify your assets, but if you’re not well-versed in crypto technology, you can gain entrance to the crypto market with less risk by buying stocks of companies with exposure to cryptocurrency. Although this is certainly less lucrative than mining for Bitcoin yourself, this strategy helps you enter the market with a bit less risk as you learn more about, and get familiar with the fluctuations in, Blockchain technology.
.. and When to Invest Your Money Elsewhere
Investing in Bitcoin can be very risky, as we’ve seen in recent crashes, so it’s not for the faint of heart. In fact, the price of Bitcoin (and several other leading cryptocurrencies) fell from about $69,000 to $20,000 in recent months – a significant loss for investors.
If market fluctuations and uncertainty in investments give you pause, you may be better off diversifying your portfolio through real estate and stock investments that have more historically positive trajectories.
As with any investment or financial decision, it’s best to do your due diligence and research your options before going all-in. And, if you’re unsure if Bitcoin is the right investment for you, you can always consult with a trusted financial advisor or crypto-expert to help you weigh your options.
The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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