Wondering what happened to all that excitement and fierce advertising about Bitcoin? You may have seen ad after ad in your inbox at some point in 2017 about ordinary people getting rich from trading Bitcoin. Today, the Bitcoin craze that peaked in the fall of 2017 has faded, in part because excitement over new ways of doing things generally fade over time anyway. But there’s another reason why investor enthusiasm has tapered off: the uncertainty over Bitcoin’s long-term survival.
Many investors are now taking a wait-and-see approach before diving or re-diving into this highly-volatile cryptocurrency, hoping that this slower period may just be a lull before another boom. This wait-and-see strategy may be smart because good buying and selling points are typically found during price retracements or pullbacks. With this in mind, you may be wondering, “should I invest in Bitcoin now?”
Unfortunately, that’s a question even experienced market analysts don’t know the answer to – some believe the coin will bust while others believe it will thrive and ultimately change the way we define “money”.
If you choose to invest in Bitcoin, note that it will be a very risky undertaking, compared to the foreign exchange market, commodities, or stocks, which have relatively lower risk and are regulated.
Not only is Bitcoin unregulated, it’s also not a real coin; the Bitcoin image you see of a capital letter B, with strokes at the top and bottom, imprinted on a gold coin is just symbolic. Bitcoin is a digital currency that merely allows individuals to transfer value to each other and pay for goods and services.
This “value” is transferred through a computer protocol, known as Blockchain. Blockchain is just a fancy tech word that means the ledger that enables two people or machines to transact with one another and to record the exchange of value through the transactions.
Bitcoin suffered a major blow to its legitimacy in the spring of 2018 when the US Department of Justice (USDOJ) launched a criminal investigation into whether traders were manipulating the digital currency’s prices. Since Bitcoin is not regulated by any government or bank, there has naturally been concerns about how its value is derived, and whether its huge price dips and spikes are due to manipulation by wealthy traders. This practice is called spoofing. It occurs when traders intentionally flood the market with fake orders to dupe other traders into buying or selling. The USDOJ teamed up with the Commodity Futures Trading Commission (CFTC) to conduct the investigation. As soon as news of the investigation broke, Bitcoin prices fell by $7,400.
Another reason for investor skepticism about Bitcoin is its extreme volatility. Bitcoin could be worth thousands of dollars on any given day, then suddenly drop to less than half its value. To give you an idea of just how volatile it can be, in July 2010, one Bitcoin was worth just 5 cents. However, in December 2017, Bitcoin skyrocketed to nearly $20,000. Shortly after its $20,000 spike, the price suddenly crashed to below $8,000, causing widespread panic among traders, resulting in the cryptocurrency market losing more than $100 billion. Get the idea?
During its boom, a couple of prominent business leaders have provided predictions of the end of Bitcoin. US business magnate Warren Buffet believes that Bitcoin and cryptocurrencies “will come to bad end.” Outspoken CEO of JPMorgan Chase, Jamie Dimon, didn’t mince any words when he said, “Bitcoin is a fraud,” and “it will eventually blow up.”
But was this just pushback talk from financial executives fearing how digital currencies will change the way we pay for goods and services? Ironically, JPMorgan Chase recently purchased a large block of Bitcoin and Dimon now says he regrets calling Bitcoin a fraud. JPMorgan Chase is also currently examining the use of digital currencies for the bank.
In May 2018, the New York Stock Exchange launched its first exchange-calculated Bitcoin Index (NYXBT), and during the same month, Goldman Sachs became the first regulated financial institution to allow its clients to trade Bitcoin futures.
These latest developments have given Bitcoin the credibility boost it desperately needs to be considered a viable currency.
Though most governments do not recognize Bitcoin as a currency, a Dutch court in early 2018 classified it as having a “transferable value” that qualified as a property right. The court ruled in favor of a man who filed a case for being owed 0.591 BTC (Bitcoin’s trading acronym).
There are no hard do’s and don’ts when it comes to investing in Bitcoin. Note that Bitcoin is just one of hundreds of cryptocurrencies; two other major ones are Litecoin and Ethereum, and lesser known cryptocurrencies include Zcash, Dash, Ripple and Monero. However, the focus of this article has been on investing in Bitcoin since it is by far the most popular.
If you decide to invest in Bitcoin, do your own due diligence – find out as much as you can about its potential growth before your invest as its growth or lack thereof is critical to assessment of whether it’ll be a sound investment decision. What you will find across the board in your search is that Bitcoin is extremely volatile, as most cryptocurrencies are, and a very risky investment. The rule of thumb for any investment undertaking is to never invest money that you cannot afford to lose.