Bitcoin, the pioneer in the realm of cryptocurrency, has become a valuable investment instrument. Despite its crash in Nov 2021, crypto still continues to dominate. However, you would be in a dilemma as an investor: Can I still invest in Bitcoin? Someone says – Bitcoin will crash again!
Should I buy bitcoins, or Should I sell my Bitcoins…
Well, no worries. Sit back and relax. Read through this post, and when you reach the end of it, you will have made up your mind about something. Let’s get started.
Potential benefits of investing in Bitcoin
Though bitcoin’s high volatility is seen as a shortcoming, there are various benefits of investing in cryptocurrency. Check it out.
- Liquidity
Bitcoin is known for its high liquidity, similar to gold. The presence of trading platforms, online brokerage houses, and exchanges has made trading bitcoin for cash more effortless and instant. The high liquidity feature makes it an apt investment instrument for short-term profit. As market demand increases for long-term investment, too, the digital currency may soon become a significant choice.
- Lower Inflation risk
Unlike government-regulated fiat currencies, Bitcoins are not prone to hyperinflation. It undergoes inflation only to the extent that its value gets halved every four years. The blockchain system is here to stay, and so the cryptocurrency will never be impacted.
- Minimalistic Trading
Stock trading involves a lot of formalities, requiring you to go for a broker service, sometimes. Besides, it is open only during certain fixed hours, during which alone you can trade. On the flip side, Bitcoin offers minimalistic trading with straightforward buying and selling through exchanges that are open 24/7. In addition, bitcoin trading occurs instantly, unlike stock trade orders which take several days or weeks.
Key risks surrounding bitcoin investing
While Bitcoin still tops the leaderboard of cryptocurrency, there are certain risks that it is susceptible to. Let’s explore them.
- Threat of regulation
Ironically, bitcoin and all cryptocurrencies face the threat of stringent regulation. While China completely banned the mining or holding of any cryptos, developing countries like India impose a 30% tax on incomes earned from crypto transactions.
The decentralized blockchain-based cryptocurrencies intend to grant greater autonomy to people while the governments are keen on remaining centralized authorities. Despite the tussle, some nations like El Salvador and the Central African Republic have made Bitcoin a legal tender within their boundaries. It is a positive gesture by these countries as Bitcoin fosters innovation and attracts investment. Today or tomorrow, the trend will continue, and more nations will embrace digital currency.
- Scaling challenges
One of the key issues faced with Bitcoin is a low speed and low volume of transactions per second (TPS). Bitcoin works using the Proof-of-Work consensus mechanism, which is highly expensive and requires energy-intensive computers to solve complex cryptographic equations. It takes around 10 minutes to process a transaction. In fact, Bitcoin has been criticized, comparing it with Visa, the most significant payments network which processes 65000 TPS. However, the lightning network, a layer-2 blockchain that runs on top of the bitcoin platform, intends to solve this problem by creating a direct connection between two separate users. It makes the transactions fast and cheaper.
- High Volatility
Bitcoin is highly volatile, with drastic price fluctuations that it’s been witnessing all these years in its journey so far. However, it has been argued that bitcoin will eventually get on par with gold as a store of value. It is said that all mined gold on Earth would amount to $12 trillion; if this holds good, Bitcoin holds a bright future. It has specific properties that are superior to gold – it’s divisible, and it can be transacted. That’s why it is referred to as Digital Gold.
Well, bitcoin offers a lot of benefits and is a road to innovation. With some countries already accepting it as legal tender, the time is not very far when it would gain majority adoption, if not mass adoption. Investment in any instrument – stocks, bonds, real estate -is prone to risks and that includes Bitcoin too.
Should I buy bitcoins? Or Should I sell my bitcoins?
I suggest investing only as much as you can afford to lose. Learn some fundamental technical analysis, try understanding the market patterns, and most importantly, follow trading gurus. A word of advice is to do your research and ‘Always side with your gut feeling.’
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