The Bitcoin is Still Here: Should You Invest In it?

Last Updated: May 20, 2019
Advertiser Disclosure

Our content may include links to products from our partners

On January 2017, Bitcoin’s value passed the $1,000 mark and has since registered a steady increase.What's the future of Bitcoin: Should You Invest In it?

The Smart Investor content is intended to be used and must be used for informational purposes only. We are not an investment advisor and you should NOT rely on this information to make investment decisions.

The price of Bitcoin has been surging upward.

Let’s take a look at the numbers. On January 2017, Bitcoin’s value passed the $1,000 mark and has since registered a steady increase and currently worth about 6,500$ (August 2018). Since the close of 2016, Bitcoin has been enjoying a bull run. From its December 31 price of $968 its value has henceforth risen to $1,839 as of May 11, 2017, and more than 18,000$ as of December 2017 and a decrease of 60% to less than 7,000$ in August 2018. As of mid-2019, the bitcoin is still around these price levels. Combining them with a good analysis would provide a clear answer to our question.  However, none of us can see the future with certainty.

Although the current trend may be reassuring, we should not discount the truth that Bitcoin is still a volatile commodity.  Bitcoin is, after all, relatively new and comes from a non-traditional, if not abstract, concept. Even if there is a lot of transparency in its evaluation, it is very difficult to learn how to accurately establish or predict its value.  In fact, people may not actually be paying for what it is really worth. Whether it is undervalued or overvalued is currently a matter of opinion.

Bitcoin: Should You Invest In it?

The Forces That Would Drive Its Value Upward

Let’s look at the forces that would drive Bitcoin value upward:

The Inherent Deflation Resulting From Its Design

First, the inherent deflation resulting from its design. Bitcoin production (or ‘mining’) follows the Bitcoin Protocol the guiding rule to make it work.  This protocol provides that only 21 million (or thereabouts) Bitcoins can ever be produced by all the miners.

So, picture the world’s economy growing bigger while the number of Bitcoins in circulation remains the same (Exactly like other commodities such as gold or oil ) .  Even with a stable value as a starting point, the growing demand for a limited commodity will cause the value of Bitcoins to naturally increase.  In that scenario, Bitcoin will be a wise and sound long-term investment.

The Projected Focus On Domestic Trading

Second, the projected focus on domestic trading. With President Donald Trump’s pronouncements to rely more on domestic trade vis-à-vis a reliance on international trade, there is an expected downturn on foreign currency trading.

As China and other trade partners brace themselves for a significant volume reduction in business from the US, American investors may opt to switch most of their portfolio to Bitcoin.  When that happens, Bitcoin’s value will obviously go up.

The Stability Of Its Value In Comparison To Other Currencies

Third, the stability of its value in comparison to other currencies. While the value of traditionally popular currencies such as the Euro, British Pound, Chinese Yuan and even the Mexican Peso have been depreciating recently, Bitcoin has remained to be less volatile.  Traders and investors may opt to avoid exchange rate losses by shifting their funds to other currencies and Bitcoin may just attract a huge slice of the pie.

Bitcoin Network Is More Secure

Fourth, the Bitcoin network is more secure. Based on the relatively new blockchain technology, the network is composed of many computers working together and not a system stored in just one computer.  Although some hacking stories may have spread around, it is by far one of the safest networks on the planet and nearly impregnable to attack.  As long as you maintain your Bitcoins in your personal Bitcoin address or wallet with the proper control of your private key, your investment is safe.

Weak

Fifth, weak currencies or government policies may drive conversion to stronger and versatile currencies such as Bitcoin. Countries like India and Pakistan have recently experienced a weakening of their respective currencies while Venezuela’s government has already implemented currency control.  These developments point out that in such situations, there is a natural desire for investors to convert their weaker local currencies to stronger currencies.

Bitcoin meets the two important criteria as a logical option:  first, it remains strong and second, trading is easier as it is often exchanged in the grey market.  A case in point is Argentina, where Bitcoin was traded in underground ‘cuevas’ (or caves) from 2010 to 2012.

On the other side of the equation, there are also several factors that may cause Bitcoin’s value to go down.  While all currencies are volatile, there is a tendency for Bitcoin’s volatility to swing wildly and erratically with its value could rise or fall by a few hundred dollars within a day.  Its fundamental characteristics may also become its weakness later – it is not a stock or an instrument and it is not yet officially recognized as a currency.  There is no government or country that financially backs it up or guarantees its worth.  It is also presently unregulated, unsecured and totally uninsured.

The Forces That May Drive Bitcoin Value Down

Here are some of the forces that may drive it down:

Promulgation Of Government Regulations Or Sanctions

Promulgation of government regulations or sanctions. While the government has not yet specifically encroached on cryptocurrencies, the fiscal direction remains hazy. Should it suddenly be declared illegal to own or trade Bitcoins, holders will be in trouble.  There is also the imminent danger about taxing the Bitcoin trade as governments may decide that it directly competes with their own currencies.  These and some other possible government restrictions would definitely make Bitcoin an unappealing option.

Debatable Security of Product Support And Services

Debatable security of product support and services. Bitcoin relies on other systems and networks in order to function as a commodity. It needs wallets, exchanges, payment processors, gateway API’s, etc. but not all of these services have fool-proof security.  Innately, Bitcoins cannot be repudiated – it’s gone when you send them.  This is all the more applicable when they are stolen from you.

The case of the collapsed Mt. Gox, once the world’s largest Bitcoin but was allegedly a victim of hacking serves as a caution.  It was reported that 800,000 Bitcoins worth around $450 million had been hacked and caused thousands of investors to lose their money. A repeat of a similar event is still probable.

A Predatory App Or Technology Might Gobble Up The Bitcoin System

A predatory App or technology might gobble up the Bitcoin system. This might sound like a sci-fi doomsday scenario but the scary thing about technology is that a superior system (or virus) may come along and wipe everything out.  A popular argument is that since Bitcoins are mined by computer softwares, a sophisticated computer intelligence may soon cause all the Bitcoins to belong to a quantum computer.

  If Bitcoin stops or slows down upgrading and improving its transaction system, this may just become a real event soon.

Pointers About Buying And Holding Bitcoins

Here are some pointers about buying and holding Bitcoins:

1. Do not invest more than you are willing or able to lose. All investments bear a certain amount of risk and investing on Bitcoins is not an exception.  In fact, it may be riskier than other investment options given all the factors -so take that into consideration. (See how to avoid the common mistakes of investors)
2. After buying your Bitcoins, make sure they are kept safe. Move them into your own personal Bitcoin wallet.  A hardware wallet offers the best kind of protection at the moment but it may be a bit costly.  If you find the cost prohibitive, you can keep your Bitcoins in a paper wallet.  In any case, do not leave your Bitcoins at the exchange.

3. Get your Bitcoins only from exchanges that have proven track records of security and good reputation.

4. Buy Bitcoins over a period of time to average out your dollar cost. This means buying a fixed amount regularly: weekly, monthly or even daily throughout the year. Do not invest everything in just one trade.  By following this method, you will be able to average out the cost of your Bitcoins over a year.  Watch this video for an explanation of this concept.

Summary – Is It The Right Time To Buy Bitcoin?

Whether you are investing in bonds, stocks, currencies, art pieces, commodities or Bitcoins, always consider your investment goals, your risk profile, your personal profile and your level of knowledge about the investment option.  Without a proper assessment of these things, it would be irresponsible to advise to go ahead.  On top of this, it needs to be emphasized that all investment activities carry the very serious and real possibility that you could lose some, most or even all of your invested money as well as their earnings

With the limited information that is available about how it was founded and its current clientele, it is hard to say whether Bitcoin will continue to be the dominant cryptocurrency or if it will survive at all in the years to come.  Nevertheless, Bitcoin is a remarkable technological breakthrough and has the potential to affect the global financial stage.