Who invests in Bitcoin and why
There are more reasons to invest in Bitcoin today than ever. Don’t you believe it?
Not to mention that according to Coinmarketrate.com BTC is worth around $40k today, there are several more reasons why an investor may consider Bitcoin as a different way of investing, different from the typical assets that he already knows and owns. This:
- Portfolio diversification
When Bitcoin was just starting to take its first steps, investors had little information, few track records to understand how this asset would perform relative to other asset classes or as part of an investment portfolio.
As it has developed, it has proven to have a low correlation with other traditional assets that are usually included in an investment strategy. As a result, a number of individual and institutional investors have started to include it as a way to further diversify.
Increasing diversification is an important strategy to maximize expected portfolio returns while reducing risk. This concept is very important for investing, and is known as the “Modern Portfolio Theory”.
- Long-term value storage
An interesting proposition that Bitcoin offers investors is its ability to hold value in the long run.
Investors are confident that in the long term, the value of the BTC will grow, as it has been happening all these years. A significant difference from other assets and cryptocurrencies that could not reproduce the same results.
Thus, many investors saw the long-term benefits of Bitcoin, allowing them to increase the wealth of different generations. Currently, many large financial institutions offer the opportunity to invest in military-technical cooperation in pension funds of some countries.
On the other hand, the ability to hold your own BTC makes the transfer of wealth from parents to children much more efficient than traditional options involving a third party.
There is a reason why investors prefer to keep their savings in the form of BTC, rather than in other assets that are unable to hold value for a long time.
Investors view Bitcoin as a safe haven for investment as it serves as a hedge against inflation.
Bitcoin is a system that offers a limited supply of 21 million coins, which protects against inflation and the potentially infinite mass of fiat money that we see in different countries.
As the money supply expands and interest rates decrease, Bitcoin is a currency that becomes incredibly attractive to individual and institutional investors who want to protect their earned savings in something that retains its value over time.
- Implementation and use of future value
Besides being a long-term investment, Bitcoin offers a unique opportunity for investors. And this means that the value of BTC will grow as the market matures, and more and more people will accept it.
Thus, the investor gets an opportunity to get acquainted with the asset as a means of payment, an effective way of making transactions and a debt security.
A large number of sellers now offer the possibility of paying with Bitcoin. As the dollar depreciates relative to BTC, this option is becoming more attractive as a long-term hold on value and an opportunity to buy and sell.
The divisibility of Bitcoin into Satoshi is also interesting for making any payments, since they can be made almost instantly from one person to another. At the same time, security and transparency are constantly maintained.
There is no need to rely on a third party to verify transactions, and transactions occur much faster than when using banks to make cross-border payments.
Finally, some institutions offer their clients the opportunity to borrow fiat money or other cryptocurrencies using Bitcoin as collateral.
Previously, traditional assets such as real estate, vehicles or business assets were used, which were depreciated over time. But the fact that BTC can maintain its value in the long run makes it an interesting asset for all parties.
Using Bitcoin as collateral for debt also allows for faster loan processing, as you can quickly find out if a person has BTC, as opposed to processing traditional loans.
For investors who want to hold Bitcoins in the long term, using an asset as collateral allows you to use their value without having to sell it.
- Distrust of the centralized financial system
Both Bitcoin and the creation of the technology that makes it possible, Blockchain, have led to a violation of the foundations of traditional financial systems. That is why many investors have decided to invest in the BTC, and use the cryptocurrency network as an alternative to traditional financial institutions.
On a macroeconomic scale, many investors are concerned about the potentially endless supply of fiat money, especially the consequences of their constant printing, which contributes to an increase in inflation and a fall in their value.
The fixed volume of BTC supply, amounting to only 21 million units, is attractive for investors who want to be sure that in the long term the value will remain or even grow.
Another aspect that makes Bitcoin attractive to investors is the fact that they can maintain personal control over their funds.
The so-called self-ownership lies in the fact that investors can keep BTC in their personal wallet and function as their own bank.
They can determine how much commission they are willing to pay for a transaction, and how long it will take to complete it. They can also choose an immediate confirmation and a way to send the transaction.
Traditional financial institutions do not offer their clients anything like this in terms of autonomy. This is because they use third parties to verify transactions.
Another reason why investors choose Bitcoin is the security of its protocol connected to the Bitcoin network.
In recent years, attempts to hack centralized institutions have become more frequent, and as a result of these attacks, the accounts of thousands of people have been hacked. Hacking Bitcoin is extremely difficult, an attack requires 51% of the total computing power of the network.
In addition, unlike traditional financial institutions, physical Bitcoin wallets, especially cold ones, are disconnected from the Internet, which provides additional protection against digital attacks.
Advantages and disadvantages of investing in Bitcoin
Bitcoin’s impressive results as a currency and investment have attracted many traditional and institutional investors.
There are many advantages of investing in BTC, compared to more common financial instruments.
Bitcoin is arguably one of the most liquid assets in the world, as it is traded anywhere where there is an internet connection. We can easily trade it and exchange it for cash or other cryptocurrencies, almost instantly with low fees.
Such high liquidity makes it an excellent investment if you want to make a long-term profit. Although some people make a profit in the short term.
- LOW INFLATION RISK
Unlike money issued by countries that don’t seem to be able to properly control their supply, Bitcoin is not subject to inflation.
The amount of BTC that can exist in this network is limited, and we can be sure that the monetary policy of Bitcoin will not be changed, since the nodes that enforce it are distributed.
- NEW FEATURES
Trading cryptocurrencies and Bitcoins is a relatively new type of activity, where new cryptocurrencies appear and become known almost daily.
This generates unpredictable price movements and increased volatility, which can create new opportunities for investors.
- MINIMALIST TRADING
When trading stocks, you must have certificates or licenses. We also need to contact a broker to be able to trade shares of a certain company.
But Bitcoin trading is minimalistic: we just buy and sell BTC on various exchanges and platforms, sometimes from our own wallet.
Transactions with BTC are carried out fairly quickly, unlike stock transfers, which can take days or weeks.
Disadvantages of investing in BTC
Bitcoin is sometimes considered the future of the monetary system, but it is important to understand some of the disadvantages of trading and investing with cryptocurrencies.
Below is a list that, although small, can turn Bitcoin into a bad investment. It is necessary to know these aspects in order to balance them with the positive ones and make an unambiguous conclusion.
The price of a crypto asset is constantly moving, and sometimes with very sharp changes. For example, on December 17, 2017, its value was $20,000, but after a few weeks we could sell the same BTC for only $7,000.
Of course, in the long term, the price can recover and even grow significantly, as it happened 4 years later, in 2021, when its price exceeded $60,000.
We have to take into account that in the short term it may be a bad investment, but in the long term everything changes.
- HACKING RISKS
Although the Bitcoin blockchain has never been hacked, individuals can become victims of such attacks if they do not take certain precautions.
When we store our own BTC, we have to take care of confidential information, such as private keys.
In addition, exchanges are often subject to hacker attacks. That is why it is recommended to use wallets that are not connected to the Internet, for example, hardware wallets.
Since institutions are adding Bitcoin to their balance sheets as a protection against inflation, and countries like El Salvador have made it legal tender, it seems that the future of the asset as a currency, or at least as a haven of value, is very rosy.
However, volatility in this market can be a problem, especially for those who are risk averse. This is a big deterrent for many investors who are hesitant to buy BTC.
However, volatility is something that is becoming less of a problem due to the fact that its adoption is growing. Along with acceptance, liquidity is also growing. The more liquid the market is, the less volatile it becomes. If someone wants to sell or buy large volumes, this will cause a sharp price movement.
Fortunately, the more people there are, the more Bitcoins will be available for trading, and this will make fluctuations in value less noticeable.
On the other hand, since it is not controlled by any central bank, its monetary policy is much stronger than that of any country.
This is embedded in its code, and is also protected by thousands of nodes entering the network, which makes it much more decentralized. If someone wanted to change the limit on his supply, he would first have to convince all these nodes to do it.
That is why Bitcoin is a great investment, at least if we are thinking about the long term. Those who want to trade short positions will face a lot of problems, and a higher risk in terms of losses.