A digital currency with the potential to transform how we think about money, bitcoin is both a market of potential profit and a source of confusion for many people.
The bitcoin price may reach a high of US$80,000 before the end of 2021, and is projected to keep rising to almost US$250,000 by 2025 and an eye-popping US$5 million by 2030, according to a panel of 50 bitcoin and cryptocurrency experts as reported by Forbes.
“As bitcoin continues to mature and increase in value, usability, age and trust, it will behave less like a growth stock, and more like a gold-like store of value,” said panelist and founder of bitcoin ATM network CoinFlip Daniel Polotsky. “Eventually bitcoin will dethrone gold as the king of safe-haven assets, and hopefully this changing of the guard takes place by the end of the decade.”
Here’s a look to help you understand just what is bitcoin and how investors can profit from this industry.
What is bitcoin?
For those people who are used to thinking about currency as a tangible object, it can be difficult to grasp what bitcoins actually are. Bitcoins are a digital currency backed by mathematical proofs.
Unlike a fiat currency, which is produced by a central bank that prints bills and mints coins, bitcoins are “mined” using computers. The mining process is essentially a means of verifying the bitcoin transaction record. Because the creator of bitcoin, who uses the pseudonym Satoshi Nakamoto, was committed to transactions remaining both completely anonymous and completely transparent, all bitcoin transactions are collected by the bitcoin network into a “block.”
The miner confirms these transactions using a mathematical formula, which turns the block into a “hash” (a seemingly random sequence of letters and numbers). Creating a hash generates new bitcoins, which is how the digital currency continues to grow.
Advantages of bitcoin investment
The primary way that bitcoin differs from other sources of currency is that it’s completely decentralized — no government can interfere with its value or functioning. Instead, the bitcoin network is dispersed across machines all over the world that work together to mine bitcoins. That means transactions across international borders are seamless, with no currency exchange required.
As a digital asset, bitcoin is also convenient because it doesn’t rely on conventional banks. You can register a bitcoin account in seconds and begin trading immediately — no paperwork, qualifying process or hidden fees like there might be at a conventional bank.
For example, international transfers, which can be a costly hassle at many banks, are a non-issue for bitcoin with its unique global transferability.
State of the bitcoin market
Like investing in most emerging technologies, investing in bitcoin is a risky venture. Its price suffered one of its biggest ever one day drops in March 2020, when more than US$1 billion in long positions were liquidated — the bitcoin price halved within eight hours, dropping to a low of US$3,600.
“The main catalyst of the sudden 50 percent decline in the price of Bitcoin within a span of eight hours was the 9.99% drop of the Dow Jones Industrial Average,” Cointelegraph reported at the time. “The United States stock market experienced its worst sell-off since 1987, as panic over the coronavirus pandemic intensified to unprecedented levels.” Within days, however, the price of the cryptocurrency had rebounded.
The digital currency’s suffered another record breaking drop in May 2021when the value of a bitcoin dropped by 53 percent, wiping out a staggering US$1 trillion dollars in value from the cryptocurrency market in one week.
Yet, over the last four years, the bitcoin market cap has risen exponentially, from about US$237 billion to a level of more than US$1.1 trillion.
Speaking to the Investing News Network (INN) about cryptocurrency-backed exchange-traded products, Elliot Johnson, chief investment officer and chief operating officer with Evolve ETFs, noted that cryptocurrencies can be risky, but there are many investors that are still keen on the opportunity.
“Some investors right now, they like the volatility, they view that as the cost of opportunity, and I think there’s some truth to that,” said Johnson, who believes that cryptocurrency investments will stabilize as they gain wider mainstream appeal. “To be perfectly honest, I think there are a lot of investors out there who are waiting for volatility to drop before they get in.”
This is an updated version of an article first published by the Investing News Network in 2015.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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