Investing can be an effective way to achieve your financial goals and build wealth over time, whether you want to reach financial stability or ensure a comfortable living for yourself or your family. Cryptocurrencies have become popular investment options as they bring a greater variety to the global economic scene and provide an alternative to fiat money.
Bitcoin is the first cryptocurrency ever created that has taken the world by storm and survived the competition despite several price fluctuations. However, Bitcoin is very volatile, so before you decide to invest in it, you should research many things, including the potential financial benefits you will have, the factors that influence Bitcoin’s volatility, or where to buy Bitcoin.
Also, to ensure you make the right decision, you should find out the pros and cons of investing in Bitcoin to see if this option is worth it or not. So, let’s delve into the good and bad sides of Bitcoin.
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Potential for High Returns
Like any other cryptocurrency, Bitcoin prices can change dramatically in a short period. There are more than 10,000 digital currencies on the market currently, and their price can be influenced by various factors, including availability, demand, the public’s perception, or the performance of other virtual currencies. However, it is quite risky to predict when the price of a certain digital token will rise or drop, which makes a crypto investment quite a risky endeavor.
But precisely, these sudden moves and this high-risk environment can lead to high returns for Bitcoin. If you know how the crypto market works and are smart enough to invest in a digital asset before the price increases, you can make a substantial profit.
Protection From Fraud
Bitcoin transactions are built on blockchain technology, allowing everyone to keep their coins safe. This happens because numerical codes identify users on the platform, and they can use private keys to access their accounts and digital wallets.
This means your real identity will be hidden as the transactions can’t be traced back to the users, and you will not need to disclose your confidential financial information. Bitcoin’s blockchain stores data confidentially and is characterized by high transparency, which is a great bonus as it offers protection from fraud.
Also, Bitcoin is made on blockchain technology, eliminating intermediaries like financial institutions, banks or governments. This ensures greater transparency, as users can easily access and verify their transactions.
Bitcoin is free of any financial authority, so investors can buy and sell this digital asset internationally. This feature allows users to increase their control over their money, to have autonomy and not worry about waiting a long time for the transactions to be processed or the increase in international fees.
Instead, it takes only a few minutes to send or receive Bitcoin, regardless of the amount or the destination. This aspect is what makes Bitcoin such a loved currency for investors, as they don’t need to worry about the usual problems associated with fiat money.
Protection From Inflation
Inflation is an important concern for investors. Fortunately, cryptocurrencies don’t play by the same rules as traditional money. This is why virtual token prices are not influenced by the value of national currencies or a country’s economic situation. Additionally, the number of digital assets issued is usually predetermined, so inflation can be kept out of the picture.
Bitcoin is one of the most versatile and accessible digital currencies. Liquidity implies many factors of a coin’s performance, including the ability to be converted to cash on demand and the bid-ask spread factor.
The bid-ask spread represents the difference between the highest price someone is willing to pay and the lowest price the seller will accept. In the crypto world, the digital asset with a narrow bid-ask spread will benefit from a bigger demand than a wider one.
Volatility can be both a good and bad feature when you choose to invest in crypto, but you need to be careful, as you could have a disastrous outcome if you don’t read the charts carefully. When an asset is volatile, you must be very careful, as you can experience high losses quickly. Some factors that increase the volatility of crypto can be:
- Earnings reports
- Negative or positive news coverage
- High spikes in trading volume
However, if you don’t want to be that affected by high volatility and lose your investments, you can use certain strategies that will reduce risks, including:
- Use stablecoins, as they have a lower volatility
- Try dollar-cost averaging (DCA), where you buy a small amount from crypto over a longer period.
To get Bitcoin, you need to mine new coins, which means you will need to waste energy and have high-end technology. Because Bitcoin is the oldest digital currency, it is more demanding and challenging to mine new coins. Annually, it is estimated that Bitcoin consumes an electricity rate of 127 terawatt/hours, and many people have begun to be concerned about this issue.
The massive Bitcoin’s energy consumption is caused by its proof-of-work system, which is more demanding. Other cryptocurrencies have tried to solve this problem by switching to a proof-of-stake model, but Bitcoin hasn’t solved this problem so far.
Bitcoin might be the first cryptocurrency created, but it also paved the way for plenty of other digital currencies and inspired other developers to improve its shortcomings. For example, Ethereum was inspired by Bitcoin but managed to offer something more, as it added better features that made users benefit from multiple purposes. As a result, Ethereum has become the second-largest cryptocurrency in the market. Plus, the newer virtual coins are less consuming and make people interested in investing in them to protect the environment.
Bitcoin is a relevant digital coin, but it needs to up its game to continue fulfilling investors’ expectations. Still, Bitcoin remains the biggest digital asset by market cap and one of the most secure options people can invest in.