Investing in Bitcoin: What to consider before you buy Bitcoin
Bitcoin is the first cryptocurrency in the world, launched in 2009. It is also the first wide-scale, real-world application of blockchain technology. Bitcoin (BTC) is a decentralised network which uses a public ledger to approve transactions, eliminating the need for third party approval (such as a bank). It also operates free of a governing body, such as a central bank, and all changes in the network require consensus from its members. While initially BTC value was extremely low, priced at fractions of cents, it picked up steam over the years, reaching price levels in the thousands of dollars for a single Bitcoin token and a market cap in the hundreds of billions.
The Bitcoin chart often displays extreme volatility, having short-term price spikes and tumbles. Sometimes, when the Bitcoin price is on the rise, more people are inclined to buy Bitcoin, fueling its positive run further. On the other hand, when the Bitcoin value is on the decline, it can prompt existing investors to sell their Bitcoin and push prices down. Moreover, Bitcoin is considered the bellwether of the cryptocurrency space, so it can often generate industry-wide trends.
Who should include Bitcoin in their portfolios?
Cryptocurrency traders: Bitcoin is the most well-known cryptocurrency, and therefore, many crypto traders buy it as part of their cryptocurrency portfolio.
Long-term investors: While still considered an extremely volatile and risky market, Bitcoin has shown tremendous price increases over time. Therefore, those who believe the overall trend will be positive could consider a Bitcoin investment.
Day traders: BTC prices can often have significant price swings over the course of a few hours. Traders can try to take advantage of these movements in an attempt to generate short-term profits.
Blockchain enthusiasts: Since Bitcoin is the first major application of blockchain technology, those who have faith in the technology and its potential impact on the tech and financial industries, could consider buying Bitcoin.
What drives Bitcoin’s price?
Bitcoin is a highly volatile instrument that has experienced tremendous price movements over the years, sometimes gaining hundreds of percentage points or crashing significantly over a relatively short period of time. While it is less affected by happenings in mainstream markets, it can be affected by a variety of factors relating to the crypto space, the blockchain industry and by regulatory issues. Here are a few examples:
General crypto trends: In late 2017, cryptocurrencies were heavily debated in the media. People, who previously hadn’t heard of the crypto, started asking how to buy Bitcoin. This sparked a massive crypto bull run, which peaked in December of 2017 when nearly all the major cryptos reached record highs.
Mainstream market volatility: Bitcoin and the rest of the crypto industry operate separately from other markets. Therefore, when mainstream markets are on the decline or become too volatile, some traders and investors turn to the crypto market as an alternative.
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