Bitcoin investing is a source of fascination and confusion for many. However, the cryptocurrency can actually be quite straightforward.
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 almost US$20,000 in 2020, and is projected to keep rising to almost US$400,000 by 2030, according to a recent Crypto Research report.
“We believe that bitcoin is still at the very start of its adoption curve. The price of $7,200 at the end of 2019 suggests that bitcoin has penetrated less than 0.44% of its total addressable markets. If this penetration manages to reach 10%, its non-discounted utility price should reach nearly $400,000,” state the report’s authors, who used the “equation of exchange” model to make those predictions.
Here’s a look at what bitcoin is and how investors can profit from this industry.
What are bitcoins?
For those people who are used to thinking about currency as a tangible object, it can be difficult to grasp what bitcoins actually are. CoinDesk explains that bitcoins, which were created by software developer Satoshi Nakamoto, are backed by mathematical proofs.
Unlike a fiat currency, which is produced by a central bank that prints bills and mints coins, bitcoins are “mined” from computers. The mining process is essentially a means of verifying the bitcoin transaction record. Committed to 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 of 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 for its global transferability.
State of the bitcoin market
Like most emerging technologies, investing in bitcoin is a risky venture. Its price suffered its biggest ever one day drop 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% decline in the price of Bitcoin within a span of eight hours was the 9.99% drop of the Dow Jones Industrial Average,” reported Cointelegraph 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. Its market cap has also risen exponentially in the last four years, from about US$9 billion to a level of US$217.5 billion.
Popular bitcoin trader Adam Mancini has said that he sees the next big price target up around US$15,000. “(Bitcoin) broke out of a multi-year bullish triangle with force,” he tweeted in mid-2020. “Bitcoin may be the new kid on the block but the same old classic patterns that apply to all financial assets still apply. (The) trend is up with $15k next target.”
It’s up to investors whether that means it’s a good time to begin bitcoin trading, or a sign to forgo this risky venture for more traditional investments. Only time will tell how successful (or unsuccessful) this upstart currency will eventually become.
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.