10 Top Reasons Why Bitcoin is a Good Investment
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Over the years since its mystery-shrouded creation Bitcoin has become many things to many different people. One of those things is an investment.
Despite the roller-coaster price swings, or perhaps in part because of them, Bitcoin has gained considerable popularity among all kinds of investors, from hedge funds to tech-billionaires to regular people looking to grow their savings. In this article I will introduce you to some of the top reasons why Bitcoin is a good investment, and why you should consider including it in your portfolio.
- It has Multiple Applications: Most people are initially introduced to Bitcoin as a form of digital currency – a new way of doing money built especially to meet the needs of the 21st century. But, in actual fact, that is just one of a plethora of uses for Bitcoin and the blockchain technology it runs on. The blockchain can be used prove ownership of things other than the coins themselves – enabling the same efficiencies and advantages for the digital trading of securities, for land titles and other property, for insurance claims, as a payment rail for remittances, for settlement between financial institutions, for document stamping and auditing, for customer rewards and crowdfunding, and quite a lot else besides. Each of these uses requires coins to pay for transaction fees and adds to the value of Bitcoin. What this means is that there are multiple paths to success: each of these use-cases is still in the early days of its development, but has the potential to create a revolution in their respective industries – and the success of any single one could drive a significant increase in value for the network they are built on. Think of it like this: investing in BTC could be like investing in the internet during its early days, and I don’t mean like putting your money into dot com start-ups – I mean the actual internet itself. The key difference, of course, is that the internet is free to use while every Bitcoin transaction must be paid for.
- Potential Gains Outstrip Potential Loses: The potential gains if Bitcoin enjoys any substantial success are astronomical. To give you an idea of this we will just consider it as a currency, which as I already explained is only one out of many applications. Many commentators have speculated about the potential of BTC as a global currency and its suitability for international trade as well as use by regular consumers all around the world. So it is not entirely outrageous to make a comparison with the US dollar. There current monetary supply for USD is approximately in the region of 70 trillion, whilst the value of all Bitcoins in existence as I publish this article is ~3.5 billion. So if Bitcoin replaced the USD as the primary currency of international trade, and the global economic power of bitcoin users were to equal the current population of America, the price would have to go up by 20,000 times – making each $1 worth of BTC today worth $20,000 in this hypothetical future. Of course that is a very ambitious target, but it is not completely impossible, and more importantly even 1% of that kind of success would turn each dollar you invest into $200. On the other side of the equation, the most you can theoretical lose is 100%, and even that is highly unlikely at this point because the technology has already been well tested and has many devoted users. So even if this is a risky investment, the risk-reward ratio is still very attractive indeed.
- Scarcity and Declining Inflation: Bitcoin is a scarce asset, because there is a hard cap on the maximum number of coins which can ever be created. For this reason it is often compared to gold, which also gains much of its value from its scarcity. At the moment (Sep 2015) something like 4000 new coins are generated each day through mining. This means that around 4000*240, or $960,000, of new money needs to come in each day to keep the price of each coin at the same value. Over time this will decrease, eventually approaching zero as the 21 million coin cap is reached. Because some coins will always be lost due to people forgetting passwords, failing to pass on wallets in their will, or abandoning almost empty wallets, the currency will become deflationary at that point – meaning its value will tend to rise against commodities and other currencies if everything else remains equal. Now is actually a good time to take advantage of this – the block reward is set to be halved some time in summer 2016, slashing the inflation rate and easing the amount of capital growth required for the price per coin to rise.
- Investment Squared: Just owning a few coins is often seen as an investment, but of course Bitcoin is money and you can invest money. In the same way it is possible to invest your coins and earn interest on them, on top of any gains you get from price increases (or to help off-set any loses, of course).
- Instant Access: You don’t need to tie up your money in long term plans in order to make a profit. As a form of money itself, this is an investment you can access instantly at any time – including dipping into it to buy your groceries at the local supermarket.
- A Hedge Against Currency Risk: For people living in countries with high inflation or the risk of devaluation, digital currency can provide a good hedge against currency risk. With China’s recent devaluation of their currency heralding renewed speculation about currency wars between nations seeking to secure their exports this could prove to be a major driver of the BTC price in the medium term future. A negative correlation has already emerged between the dollar value of BTC and CNY, and devaluation in other emerging economies could drive a substantial amount of new capital into Bitcoin.
- A Safe Haven from Bank Crises: Money in the bank is not as safe as it used to be. In Cyprus savers saw a one-off levvy taking a massive ‘haircut’ off the value of their nest eggs, whilst the people of Greece are suffering extended limits on the amount of cash they are able to withdraw from their accounts. Not only does digital currency provide a safe haven from these risks, it also allows you to profit from the increased interest generated when things like this occur. The same goes for government capital controls, with consumers in many authoritarian regimes already using it to get around oppressive legislation. Some commentators are already suggesting that Chinese capital controls may soon spark the next price boom.
- Open to All: Investing in Bitcoin is easy, open to everybody (not just accredited investors), and doesn’t require you to compromise your financial privacy.
- An Ethical Investment: A large part of the original inspiration behind the creation of Bitcoin appears to have been the desire to provide a solution to the global banking crisis that started in 2008/2009, and a way to make sure that it never happens again. Bitcoin is the currency of the people, free from the dominance and profiteering of the global banking industry which has caused so much damage to the global economy. By buying coins you are supporting the network to make money fairer and more aligned with the interests of the people rather than the banks.
- Its exciting! Perhaps the best reason why you should invest in Bitcoin is because it is super exciting. Its exciting to be involved with such a new and revolutionary technology, its exciting to see it changing the economic landscape and to read the latest news to keep yourself up to date.
Excitement is not a good reason to make an investment. It is a fine reason for speculation, but call it what it is, speculation.
Its not a good reason for speculation either and I wouldn’t suggest anybody use that as part of their analysis over whether something will rise or fall in price. But people tend to be better at things that they find interesting. Some people invest in stocks, others commodities, and so on – the reason why they choose to be involved in one of these things is often that it aligns more with their interests so they find it easier to gather the necessary knowledge about when and what to buy and sell within that category. It was in that spirit that I offered the observation that it is an exciting area to be involved in.
Please do not confuse me with bitcoin and criticize my writing just because you have decided that bitcoin is too risky for your personal tastes.
I would also like to add that describing bitcoin trading as speculation rather than investment is absurd, as the term ‘speculation’ implies an absence of hard evidence on which to base decisions. It implies that you are merely gambling.
But with Bitcoin every single transaction is recorded in real-time on a public ledger which anybody can view – which means that there is an embarrassment of hard data. You can view the number of transactions, volume of transactions, number of addresses created and used, exchange volume vs spending etc. etc. – all in real time. I would describe forex trading or trading stocks with any time horizon less than a year as much more speculative than Bitcoin trading, because in those situations there is much less hard evidence to go on.
Look, bitcoin will become more expensive, it’s clear. I prefer mining via VPS at the bpw.sc