Things you should know when asking Should I invest in Bitcoin?
Bitcoin price plummeted below $16,000 in 2022, making 2022 one of the most turbulent years for cryptocurrencies.Since it reached its record high of $69,000 in November 2021, it has been on a downward trajectory. Should I invest in Bitcoin? The answer is in the question. Do you trust bitcoin’s recovery or should you run a mile? Online digital money is not that complicated in itself. Most of us are familiar with transferring money from one online bank account to another. Bitcoin, for example, is a digital asset that operates like a normal currency, but with some notable differences.
Unlike banks, they do not take a cut from every transaction when using peer-to-peer payment methods. Coins do not exist in physical form either. Each bitcoin is created (or mined) using an encrypted code, which is a string of numbers and letters. The same equation used to create the code can “unlock” it (like a virtual key).
The following are other important points about bitcoin:
Blockchain technology is used to send data in cyberspace via cryptocurrencies, such as bitcoin, Ethereum, and Cardano.
There are only 21 million bitcoins that can be mined in total, and each one must be mined.
There is no central authority that regulates cryptocurrencies, such as a government or central bank.
There are many platforms that allow you to purchase bitcoins using credit cards (be aware that your credit card company may charge a fee)
The price of bitcoin and several other leading cryptocurrencies have been on a downward trajectory in 2022.
Rising inflation and interest rates have caused cryptocurrency to fall along with stocks and shares as investors dial down the level of risk they are taking on.In November 2022, the price of bitcoin fell below $16,000, according to Coinbase*.
One bitcoin is now worth around $17,000. That’s a long way from the all-time high of $69,000 seen in November 2021.
The recent turmoil has been caused by:
The collapse of major cryptocurrency exchange FTX after it struggled to find a buyer to rescue it. This is having a knock-on effect on other crypto exchanges
Uncertainty around rising interest rates in the US and UK, causing a sell-off in risky assets
A cost of living crisis caused by rising inflation means that investors have less disposable income to spend on buying bitcoin and other cryptocurrenciesChina making cryptocurrency transactions illegal.
Suggestions that Russia could ban cryptocurrency trading and mining, causing prices to plummet. There have also been threats of further regulation for cryptocurrency investments in the future
We go into more detail about the causes of the crypto crash. Should I invest in Bitcoin?
Will bitcoin go back up?It is impossible to say whether bitcoin will recover back to the heights we saw at the end of 2021.The price of crypto is based purely on speculation, making it difficult to predict what the future holds for this volatile asset. In other words, bitcoin’s performance will depend on how the rest of the crypto crowd is feeling. Bitcoin’s previous performance might give some investors confidence of a full recovery. In 2018 bitcoin plunged by 83% before going on to reach fresh record highs in 2020 and 2021.
The price was propped up by people having built up some savings during the lockdown. But there are no guarantees that bitcoin’s price will return to the levels seen in November 2021 when it reached $69,000.If you’re currently invested in bitcoin, it’s probably worth holding onto your hat for the time being. But if you’re waiting for bitcoin to bounce back, you might need to be very patient.
Should I invest in bitcoin?
Bitcoin is extremely volatile and high risk. It’s certainly not a good idea to invest all of your savings in cryptocurrency.
If you are willing to take the risk, first make sure you understand what you are investing in and have a crypto investment strategy.Also make sure you aren’t investing simply because you have a fear of missing out.
There are a number of questions you should ask yourself before getting involved:
Do I understand what I am investing in and how bitcoin and the crypto market work?
Am I happy with the level of risk? Should I invest in Bitcoin?
How much more expensive is it now compared to a few months ago? If so, why am I wanting to buy a thing because its price is higher? Where else in my life do I do that?Is there any evidence to suggest prices could rise even higher?
If I buy it now with a view to sell it for even more later, who do I think will buy it from me for that higher price and why?
If an asset is so great, why was I not interested when it was much cheaper?
Have I convinced myself that I am in some way “in the know?”If you don’t have answers to these questions, it’s probably not a good idea to invest. If you do buy bitcoin, make sure you aren’t putting the money you need on the line. Read more about cryptocurrency tips (and mistakes to avoid).
If you are new to investing and want to know more about the general principles and how to get started, check out our guide here.
What you need to know about investing in bitcoinsMaking money as an investor depends on how much you pay for an asset and how much you sell it for. When you sell at a higher price than when you bought it, you will make money.You will lose money if you sell it for less than you bought it for.
As an example, if you had invested in bitcoin at the beginning of:You would have made a 300% profit if you sold on 31 December 2020In the scenario of selling in 2018 and selling on 31 December 2018, you would have lost 73% on 31 December 2018.
Bitcoin is extremely volatile so the trick is not to panic and crystallize your losses by selling when its value inevitably falls. This is the same with all investments.
Before investing in bitcoin, consider the following factors. Should I invest in Bitcoin?
The risk and potential rewards of cryptocurrency investments are similar to those of any investment. Cryptocurrency is more risky than traditional investments.
The following are some things to consider before investing:
It is definitely not a good idea to invest your entire life savings in cryptocurrency markets
Invest only a small amount of your disposable income, and be prepared to lose it all
Invest only what you can afford to loseAvoid crypto if you don’t have much money left over at the end of the month and focus on saving instead. Should I invest in Bitcoin?
The best way to maximize your chances of making money with cryptocurrency is to treat it as a long-term investment rather than a short-term investment.
Cryptocurrencies are extremely volatile, subject to bull runs and market crashes without a doubt.