In the current state of things, many are rightly curious about whether they should invest in BTC.
There are many attractive things about the popular cryptocurrency and the hype does well to push that image even further. Investing in bitcoin can mean a few different things depending on who you talk to, but most would agree that the built-in deflationary system, growing status as a store of value, increased institutional support, and promise of future valuation, are enough reason to consider BTC as a worthy contender in the world of investment vehicles. Despite a growing consensus on the viability of bitcoin, there are still a few things that anyone new to bitcoin should be aware of.
One of the most common arguments you will hear supporting bitcoin as an investment tool is that BTC can provide a hedge against inflation. Since the first days of the popular crypto, its proponents have pointed to the fact that the more mature bitcoin becomes its scarcity also increases. That fact makes it deflationary by nature which is a quality that should certainly create value over time.
In the current state of fiat currencies and global economies, there is a lot of fear as to whether we are on the cusp of a global inflationary period that threatens to cheapen assets held in traditional currencies, stocks, bonds, etc. If those fears turn out to be true, bitcoin would certainly be a wonderful thing to have. Bitcoin has shown a tendency to follow the traditional market quite closely through market downturns and rallies alike – with a couple instances of bitcoin even leading the way.
When bitcoin shows comparable price action to traditional markets, such as the stock market, commodities, precious metals, and others, it would make sense to feel that bitcoin is somehow tied to those markets. However, as we have seen in recent events, any correlation between bitcoin and other markets is linked to BTC prices being driven by the same market psychology that drives the other markets. Often, it is the same investors with hands in different pots, making similar moves in multiple markets at once. Bitcoin has proven on multiple occasions that it can and will follow its own trajectory when its backers decide to go in their own direction.
So, with the Fed printing new dollars day in and day out to the tune of many trillions of dollars, and many other countries following suit, many feel that serious inflation is right around the corner. For investors, that potentially means whatever outlook they once had for their portfolio could very well be devalued in a serious way. With that in mind, investing in an asset like BTC that creates a hedge against the devaluation of once’s investment capital seems like a smart move.
There is a lot of ‘smart’ money thinking along the same lines as well. With names like Paul Tudor Jones, Tyler Winklevoss, and Mike Novogratz openly supporting bitcoin as an increasingly safe investment tool, many traditional investors and brokerage firms have begun to take BTC very seriously. A number of the world’s most influential investors have now moved considerable portions of their portfolios into bitcoin to provide themselves a safety net by further diversifying their wealth.
Apart from inflation, there are other aspects of bitcoin investment that are useful to know. A few of which is the differences between investing and trading, as well as short- vs long-term investment strategies.
If you are looking to invest in bitcoin, it is important to note the difference between trading and investing. Much of the hype that surrounds bitcoin circles around trading the cryptocurrency. There is considerable inherent earning potential with bitcoin as a trading tool given its extreme volatility which has helped the cryptocurrency create an intense following of die-hard traders. While it is true that you can make a lot of money while trading bitcoin in the short term, the approach to investing is a little less flashy and long-term.
In general, bitcoin performs better than the stock market when held for long durations. The stock market has a yearly average rate of return increase of around 10%. After deducting the 2-3% of lost purchasing power due to inflation, we can consider that average in terms of real value to be closer to 7%. Bitcoin, being still relatively young, is a bit hard to find an ‘average’ for because whatever means you found would do little to paint a clear picture in terms of possible returns from bitcoin investments.
Bitcoin has always been highly volatile and as such performs very differently year on year. That said, it is also one of the best-performing assets since its inception. BTC has risen by more than 46,000% in just eight years and with an ever-increasing scarcity built-in, many are expecting bitcoin to continue to perform well.
If you are thinking about investing in bitcoin, consider the long term and do not get shaken out of your investments due to the intense (and often scary) volatility. Make a plan and stick to it, but as always, be sure to diversify as much as possible.
Long-term Investment Options
When you decide to invest in bitcoin for the long term, there are numerous options available to you. Each of the available choices comes with a set of pros and cons that you will have to weigh for yourself, but in general, the cons of all marginal.
Cold storage is an exceedingly popular way to keep bitcoins offline and in your possession. It is possible to move your keys to a secure device which is encrypted and completely safe from any kind of hacking activity or user error. In contrast to cold storage where keys are kept offline, many online crypto wallets powered by fintech companies provide an opportunity for bitcoin holders to purchase, trade, and hold as much bitcoin as they want for as long as they wish to hold it. It is wise to research the companies behind online crypto wallets to ensure that your investment is in safe hands.
Another popular choice for storing bitcoin for prolonged periods are interest-bearing bitcoin saving accounts, such as what you can get from Cred or Blockfi. There aren’t many options available at the time of this writing, but the concept is becoming more popular as time goes on. The remarkable thing about this option is that holders are given a considerable rate of return – often as high as 8-10% - which is added to the capital at regular intervals. This interest compounds and provides opportunities for considerable, long-term growth.
Whichever long-term investment tool you choose, remember that some platforms make it far simpler than others to convert your funds to other investment tools should global financial markets take an unexpected turn. In general, if your holdings are on a platform that facilitates some level of trade and transfer, adjusting your portfolio will be faster and more convenient. Just keep in mind that it is not usually advisable to leave your bitcoins on exchanges such as Binance, Coinbase, etc. It is far better to move your assets to a dedicated wallet.
The stock market is still being propped up by the Fed, fiat currencies around the world are being pumped into the global economy at breakneck speeds, and no one knows what the next few months will mean for the value of their current assets. These are all good reasons to consider every viable option at our disposal that can help us fight against the uncertainties we are now faced with. Bitcoin is an attractive option and it seems its role as a store of value may even exceed gold at some point soon. That coupled with the very real possibility that bitcoin may yet reach higher highs than ever before, investing in bitcoin could provide even more than a safety net. BTC could very well prove to be an excellent investment opportunity moving forward.