You might have heard about Bitcoin, the cryptocurrency that’s currently skyrocketing in value, but you may not know whether it’s worth investing in or not. We took to the experts to find out if it’s really worth it and if you should add Bitcoin to your portfolio. Here’s what they had to say on the matter.
How valuable are cryptocurrencies like bitcoin?
The value of bitcoin, and other cryptocurrencies like Etherium, is all about supply and demand. Like most things in life, these currencies are worth as much as someone else is willing to pay for them. So, if you’re asking whether or not these cryptocurrencies are viable investment vehicles for you—as in something that might deliver high returns—the answer depends on what your goals are with them. If your strategy is to hold onto one or more cryptocurrency for many years before selling it off for a profit down the road (which is often how people invest in things like gold), then you can afford to be patient because you have time on your side.
However, if you’re looking to make money quickly by flipping cryptocurrency back and forth between different exchanges, then it would behoove you to do some research into current trends. The volatility of bitcoin makes it difficult for anyone but experienced investors to make money trading cryptocurrencies right now. It's also important to remember that investing isn't just about making money; it's also about mitigating risk. If your goal is to protect against risk, then bitcoin may not be a good choice since its price has been known to fluctuate dramatically over short periods of time.
What are cryptocurrencies, anyway?
Cryptocurrency is a type of digital currency that depends on encryption techniques to be managed and to be released. The first cryptocurrency to be created was Bitcoin back in 2009. There are now hundreds of other cryptocurrencies available, usually called altcoins. These include Ethereum and Ripple. One thing they all have in common is that they aren't controlled by central banks or governments.
Instead, cryptocurrencies rely on distributed ledgers (blockchains) to record transactions made with them. Bitcoin is seen as an alternative asset class by many investors; it's become more stable than many fiat currencies because of its limited supply (there will only ever be 21 million bitcoins mined). While some people think bitcoin could eventually replace traditional currencies like dollars and euros, others believe it will always remain a niche product. For example, Jack Bogle doesn't think bitcoin has staying power because it isn't backed by anything tangible like gold or silver.
How do I buy cryptocurrency?
Buying cryptocurrency can be confusing, but it's not that hard. In order to do it, you need to sign up for an online exchange where you can purchase coins and store them in your digital wallet. You can use Bitcoin, Ethereum, Ripple and Litecoin—as well as US dollars and Euros—to buy cryptocurrencies on these exchanges.
Remember: It's typically not a good idea to store your coins on an exchange. Instead, keep them in a wallet where you control their private keys.
This is typically safer than letting exchanges hold onto your coins; however, if they are hacked or go out of business there is no recourse or way of getting your money back like you would with traditional banks and financial institutions. And remember, cryptocurrency is volatile! The value of Bitcoin has risen from $1,000 at its inception in 2009 to around $14,000 today. However, it also dropped from $20,000 to below $7,000 within a few months earlier this year. Because cryptocurrencies are so new and unregulated by governments (and therefore much less secure), you should only invest what you're willing to lose—and never more than 5 percent of your overall portfolio. It's important to diversify too—don't put all your eggs in one basket. For example, instead of buying Bitcoin directly, consider investing in companies that deal with cryptocurrencies.
One popular investment vehicle is Grayscale’s Bitcoin Investment Trust, which tracks Bitcoin price movements while enabling investors to buy shares worth a fraction of a bitcoin without actually having to buy any cryptocurrency itself.
Should I invest in cryptocurrency or have an IRA?
Bitcoin and other cryptocurrencies are on track to becoming mainstream investments in 2017. But they also have value if you see them as currency replacements. This is according to one analyst, so; Kitco’s Jim Wyckoff wrote earlier today that he believes cryptocurrency will function like gold.
If you take his perspective, there are two main things to consider: investment-wise and IRA-wise, should you invest in cryptocurrency or add it to your individual retirement account (IRA)?
First, he sees Bitcoin potentially hitting $2,400 USD per coin by year end—about 70% higher than current levels at time of writing.
Second, he sees Bitcoin being used for payments rather than an actual store of value.
He writes: Bitcoin is a digital currency that could be used for payments just like any other cryptocurrency but I don't think it's likely to replace fiat currencies such as dollars or euros.
However, he does expect Bitcoin prices to continue rising due to its limited supply relative to demand. And, yes, cryptocurrencies do offer investors exposure to digital currencies—and that means exposure directly to their underlying demand.
Where do I keep my bitcoin once I get it?
Most cryptocurrency investments are made through a cryptocurrency exchange, where you'll deposit your funds and be able to trade them for other cryptocurrencies. Investing in cryptocurrencies is not without its challenges. Most exchanges don't allow you to use traditional payment methods such as credit cards, so you'll have to find a way to fund your account using only cryptocurrencies (typically bitcoin or Ether). If your exchange of choice doesn't accept your desired payment method, you may need to purchase Bitcoins or Ether on another platform that does support it, such as Coinbase—which can then be transferred over.
Though trading cryptocurrency is similar in some ways to trading stocks, there are also key differences. For example, cryptocurrency trades cannot be canceled. Once you place an order, it will remain open until someone takes action on it. Also, cryptocurrency exchanges operate 24/7 and are open to anyone with access to them. This means that if your computer crashes at 3:00 AM while you're asleep, your investment could vanish into thin air if no one else is around to take action on it. Be sure to do plenty of research before investing in cryptocurrency!
When will people stop talking about bitcoin?
There will be time for people to stop talking about bitcoin, and that time is not now. Bitcoin is far from being done as an investment, in fact, its only just beginning. There’s going to be ups and downs in value – and no one can predict what’s next for bitcoin or any other cryptocurrency – but if you believe in it as an asset class then now is not too late to get involved.
Now is always a good time to invest, even when things seem uncertain. There are simply too many opportunities to let go to bypass the prospects.
But most of all: Don’t listen to anyone else tell you they know better than you what your investments should be.
Bitcoin isn’t right for everyone, but it could be right for you. Do your own research and make up your own mind. You may find out something new about bitcoin or cryptocurrency that changes how you see these technologies, which could change how much money you make with them. And who knows? Maybe someday soon someone will stop talking about bitcoin altogether... because bitcoin won't need their help anymore. Bitcoin has proven itself resilient against short-term price fluctuations, negative news, and FUD; it is ready to take on the challenges that are sure to come. At least for now...
Who’s making money off of cryptocurrencies, anyway?
When it comes to buying cryptocurrencies, there are two types of people you’ll find: those who do it for fun and those who do it for money.
Some try their hand at cryptocurrency investing on an experimental basis. For example, maybe they bought $100 worth of Bitcoin just to see what would happen or because their friend told them about how easy it was to get rich overnight.
Others are in it for real. They take some time learning about cryptocurrencies so that they can invest money they otherwise wouldn’t feel comfortable risking on more traditional investment vehicles like stocks or real estate.
As with any investment vehicle, you have to research each cryptocurrency thoroughly before committing any capital if you hope to make money off of your purchases in anything other than a purely speculative way.
Here’s what cryptocurrency experts say you should look out for when researching cryptocurrencies:
A few important questions to ask yourself are What is the technology behind cryptocurrency and why does it work? How many coins are being created and will there be enough demand for them? Is Bitcoin secure enough as a means of storing value over time? Does Bitcoin offer benefits over existing payment networks (such as credit cards)? Does Bitcoin offer new opportunities (for instance, in micropayments)? Is there such a thing as too much volatility? How quickly could I lose my investment by jumping into cryptocurrency investments without doing my homework first?
If you're going to put money into cryptocurrency, here's what experts recommend when looking at individual cryptocurrencies.
First, look at some fundamentals: Before investing in any cryptocurrency, it’s important to understand some of its underlying fundamentals. First and foremost, who’s involved with creating or maintaining that cryptocurrency? The creator or maintainer has a large impact on how valuable that cryptocurrency becomes over time. For example, Bitcoin was created by an anonymous person known only as Satoshi Nakamoto—and his involvement has been almost non-existent since 2009. As such, Bitcoin isn’t likely to become a widely used currency anytime soon because people don’t trust Satoshi enough to believe he won’t just take off with everyone’s Bitcoins one day.
On the other hand, Ethereum was developed by Vitalik Buterin, a 22-year old Russian Canadian programmer. He works full time on Ethereum and is committed to making sure Ethereum succeeds long term. More importantly, he’s backed up his commitment with his own personal wealth—he purchased nearly $400 million worth of Ether tokens during Ethereum’s initial crowdsale in 2014.
That gives him a lot more skin in the game than someone like Satoshi had during Bitcoin’s early days. Who else is backing up your cryptocurrency? Who backs up your cryptocurrency matters quite a bit when considering whether or not to invest in it.
Is investing in bitcoin a bubble waiting to burst?
Investing in Bitcoin (or any cryptocurrency) can be risky. It's unclear whether they're legal, they're unregulated and there is always risk of fraud or theft. But as more people learn about cryptocurrencies, Bitcoin may begin to play a larger role in our economic future. There are many factors at play when deciding if bitcoin is overvalued or worth buying for investment purposes. Still, it's probably safer to invest in stocks with proven business models and steady cash flows than invest in unproven cryptocurrencies that have no product or service attached to them at all.