When it comes to modern day Internet jargon, Bitcoin may hold one of the top spot. It is one of the most searched terms in Google for 2016. It started as a black hat medium for exchanging money in Deep web, but now it’s become a common crypto currency. Bitcoin is so popular now that people actually started investing in it like they do in other financial instruments. In this article we would understand what Bitcoin is and would explore the pros and cons of investing in Bitcoin.
What is Bitcoin?
Quoting Wikepedia “Bitcoin is a cryptocurrency and a payment system invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto“. It is a non-tangible electronic currency controlled by no one. In fact it is produced by people like us using advanced computation algorithms. The process of producing Bitcoin is termed as ‘Bitcoin Mining‘. Bitcoin can be used to transact electronically like we do with Credit cards. And since there is no one controlling it, there is no transaction fee at all. Your bank may charge you hefty fee for international transfers, Bitcoin doesn’t.
Here is a video from the Guardian explaining Bitcoin in simple terms.
Investing in Bitcoin: Does it makes sense?
The moot question that now arises is: Does it make sense investing in Bitcoin? Published data shows that ever since their inception, buyers have been somewhat reluctant to buy them and only 26% of the sample group in a recent survey were readily willing to accept them and these belonged to the 18 to 24 year age group. However, the popularity of this digital currency is rising among the lower income groups and also among the non-white population where 80% buy and sell Bitcoins to enhance their investment portfolios, whereas the remaining 20 % use them as a medium for daily spending.
The Bitcoin concept bases itself on the pioneering block-chain technology which is predicted to revolutionize the financial services sector in future. Block-chain technology enables multiple parties to simultaneously view, validate or edit a particular transaction and eliminating the concept of the middleman. It cuts costs substantially (by nearly 90%) and enhances the speed and efficiency of financial transactions.
In terms of being an investment, Bitcoins have been known to be unpredictable with values fluctuating wildly – between 1 cent to a whopping $1,200! Its overall nature is that of a high-risk, high-reward or loss investment. Its very speculative nature attracts more investments, therefore, particularly from those out to make a quick buck.
See the below chart of Bitcoin vs USD from Trading view. Yes, people apply Technical Analysis in Bitcoin as well!
Currently it is priced at around 1000 US Dollars for 1 Bitcoin.
The overall view in the financial services world, however, is that the future of the Bitcoin is somewhat unpredictable, at least right now. It’s evolution has been fairly dramatic, its value fluctuations have been wild and its performance has been somewhat erratic over the last one year. These in their totality, make it more difficult to predict its immediate futures. For risk takers, Bitcoins are available on online exchanges like Coinbase, Circle and Kraken. They may be tools for portfolio diversification but certainly cannot be your sole investment.
It is advisable, therefore, that you invest into bitcoins, track their performance carefully and invest systematically for the long-term. Ideally, 1 –2 % of your investment portfolio should comprise bitcoins. If you wish to place bitcoins in your retirement portfolio, you can do it through the Bitcoin Investment Trust, which operates like a traded fund or stock with each share representing a tenth of one bitcoin.