Is Bitcoin a Good Investment? [2024 Edition]

Since Bitcoin launched in January 2009, it’s turned many people into millionaires and has even created a handful of billionaires through their well-timed buy and sell transactions. More than that, Bitcoin has gained prominence as the future of decentralized finance (DeFi) and has been adopted by many as a functional currency. Based on its astounding market cap, Bitcoin is by far the most prominent cryptocurrency today and is often the focus of investors' interests.

Nevertheless, as is true with all digital currencies, Bitcoin is highly volatile, presenting investors with the chance for extraordinary profits as well as the significant risk of substantial loss. Bitcoin's price dropped by over 10% in August 2023 to $26,000, making it the worst month for the year. Additionally, Bitcoin's price plummeted to $16,000 in 2022, 75% below its all-time high of over $69,000.

With these factors in mind, we’ll explore whether Bitcoin is a good investment in 2023. Key Takeaways:

• Despite having the largest market cap of any cryptocurrency today, Bitcoin's price is marked with volatility, presenting both opportunities for profits and risk of losses.

• Bitcoin is often regarded as the future of decentralized finance, offering users control over their wealth without reliance on centralized institutions.

• When considering an investment in Bitcoin, it’s prudent to delve into comprehensive research and employ various risk management strategies.

What Is Bitcoin and How Does It Work?

Bitcoin is the world's first successful cryptocurrency, created by a pseudonymous individual(s), Satoshi Nakamoto, in January 2009. Developed as an alternative to fiat money, its decentralized nature empowers users with control over their wealth without relying on centralized institutions such as banks.

Bitcoin achieves decentralized consensus through its use of the proof of work (PoW) consensus mechanism, which involves competing miners using the power of computers to solve complex mathematical puzzles to validate and confirm transactions and add them to the blockchain. This PoW mechanism ensures the integrity and security of the network.

Bitcoin is distinct from traditional investment options that you may be more familiar with, such as stocks and commodities. Unlike corporate stocks, which represent ownership in a centralized business entity that generates revenue from its products or services, Bitcoin isn’t a tangible, raw material. Instead, its core function is as a decentralized digital currency.

From a utility perspective, Bitcoin presents a transformative potential in the financial world by leveraging decentralized blockchain technology to validate and secure its transactions. For example, Bitcoin transactions occur directly between users, without needing a third-party intermediary such as banks, which helps facilitate smoother, faster cross-border transactions. In addition, transactions recorded on the blockchain are immutable, which means they cannot be altered or reversed. These characteristics offer a high level of payment security and help to prevent fraud.

Yet, while Bitcoin is increasingly employed as a medium for purchasing goods and services, its adoption for such real-world transactions remains in its early stages. Some individuals may use Bitcoin for real-world transactions or as a potentially lucrative investment, but those in the broader crypto community mainly invest in Bitcoin to support the evolution of the crypto industry and the wider adoption of digital currencies.

What Gives Bitcoin Its Value?

There’s a fixed supply of Bitcoin’s native token, BTC. Specifically, the maximum supply is locked at 21 million BTC. Currently, 19.48 million BTC are in circulation. Because of the limited supply of BTC tokens, Bitcoin’s value is solidly rooted in the fundamental economic principle of supply and demand. As demand for BTC increases, upward pressure raises the price. However, when demand decreases, the price of BTC correspondingly decreases.

Fiat currencies, which are widely used around the world, are also subject to price fluctuations based on supply and demand. However, banking systems can create more money, such as by extending credit to borrowers. In addition, governments can print more money. Both of these activities play a role in the value of fiat currencies, but these factors aren’t at play in determining Bitcoin’s value.

As a digital currency, Bitcoin has a few key characteristics.

Scarcity

With a fixed supply of BTC and with most of those tokens already in circulation, the scarcity of BTC plays a direct role in the value of this digital asset. In addition, Bitcoin has a halving event approximately every four years, after which the reward received by the network's miners is halved. After the upcoming halving event in April 2024, the payout to miners will be cut from the current 6.25 BTC to 3.125 BTC.

Halving plays a key role in contracting supply, and has historically had a profound impact on Bitcoin’s price. For example, the 2012 event took BTC’s price from $12.53 to $126 just five months after the halving. In 2016, the price went from $650.87 to $763.91, and in 2020, Bitcoin's price rose from $8,852.62 to $11,286.54.

Some strategy advisors suggest purchasing BTC roughly six months before a halving event and holding it for at least six months afterward. However, while BTC’s price has historically increased after halving events, it’s crucial to understand that all crypto investments are risky. There is no guarantee that the next halving event will yield the same impact on price as the previous ones.

High Cost of Production

Mining Bitcoin is an energy-intensive process that entails solving complex mathematical equations to verify transactions, thereby consuming a substantial amount of electricity. This results in high operating costs because electricity drives the equipment necessary to mine Bitcoin — and to mitigate the heat that the mining machines produce. The combination of immense energy consumption and resultant high costs of Bitcoin mining creates a steep entry barrier to newcomers, ultimately driving up the price of Bitcoin.

Competition

As of Sep 12, 2023, Bitcoin remains the largest cryptocurrency based on market capitalization, exceeding $500 billion. Ethereum, the second largest cryptocurrency, boasts a market cap of $189.95 billion. While Ethereum hasn’t yet surpassed Bitcoin's market cap, some crypto enthusiasts believe that the so-called Flippening may occur in the future.

Ethereum's recent transition from PoW to proof of stake (PoS) network, known as The Merge, positions it as a front-runner in the realm of smart contract platforms. Those monitoring the possibility of a Flippening note that Ethereum has already surpassed Bitcoin’s number of transactions and amount of transaction fees paid — significant indicators of its growing utility and adoption.

Nonetheless, Bitcoin’s market cap has continued to rise alongside Ethereum’s, and the upcoming halving event will likely reinforce Bitcoin’s dominance.

Public Interest and Media Coverage

The value of Bitcoin is heavily influenced by public interest, and both word of mouth and media coverage drive public interest. Interest in Bitcoin investing tends to accelerate rapidly when the price is trending upward. As more people invest in Bitcoin, the price increases further. Eventually, such speculation and grand hopes of getting rich quickly lead to a Bitcoin bubble.

Short-term investors looking for a quick profit complete Bitcoin transactions rapidly at the first sign of a mass selloff, hoping to lock in what profit their Bitcoin investment has produced. 

Historically, the media has picked up on rapid rises in the price of Bitcoin. This can create an even greater frenzy in Bitcoin investing, even among those with minimal interest in the cryptocurrency market. However, just as the media begins to cover stories about rapid price increases, it also reports price drops —which contribute to panic selling, resulting in tremendous price decreases. In this way, public interest and media coverage can both feed into Bitcoin price surges and declines. 

A Closer Look at Bitcoin's Historical Performance

For cryptocurrency investors wondering if Bitcoin is a good investment, a review of its historical performance can be helpful.

In recent years, inflation and the printing of more U.S. dollars have contributed to increased interest in investing in the cryptocurrency market, due to Bitcoin's reputation as digital gold.

Bitcoin's strong market cap, investor demand and scarcity drove it to reach its all-time high of $69,000 in 2021. However, the volatility of the cryptocurrency market has yielded sharp declines in BTC’s price as well. For example, in November 2022, BTC fell to a low of $16,000 after the crypto crash brought about by several crises, most notably the FTX insolvency.

Throughout its history, Bitcoin's price has been substantially influenced by overbuying and overselling. Those who invest in Bitcoin often focus heavily on market sentiment and media influence. However, volatility represents opportunities for significant profits among short-term investors. Additionally, Bitcoin’s price grew by an astounding 37,000% between 2013 and 2023, making it a potentially lucrative long-term investment as well.

Why Did Bitcoin Crash in 2022?

As with other digital currencies, Bitcoin’s price took a deep plunge in 2022. Specifically, its market value declined by 65% in 2022, falling to $16,000 in November. Numerous macroeconomic factors took their toll on the crypto market in 2022, particularly the FTX debacle and the Terra/Luna crash.

The very first catalyst was the Terra/Luna crash in May 2022, when the third largest stablecoin, TerraUSD (UST), depegged from the U.S. Dollar, dropping to a price of $0.035 on May 9. A few days later, its sister token, LUNA, which was meant to help maintain the price of UST, fell in value from almost $80 to barely a few cents. When Terra/Luna collapsed, it produced a $50 billion valuation loss in the crypto market.

The crypto market faced another devastating crisis in November 2022 with the collapse of one of the world's largest cryptocurrency exchanges, FTX, which filed for bankruptcy due to a combination of liquidity crunch, large withdrawal volume and fund mismanagement. The FTX downfall resulted in an estimated loss of $1 trillion throughout the crypto market.

The ripple effects of these two crises raised the overall FUD (fear, uncertainty and doubt) as investors began to view crypto as a highly volatile and speculative asset, contributing to lower risk tolerance.

Is Bitcoin a Good Investment in 2023?

On Aug 1, 2023, the price of BTC was $29,233. It then fell to $26,042 on Aug 19. Several factors may have contributed to this recent decline.

For example, SpaceX had reportedly sold a substantial amount (or possibly all) of its Bitcoin holdings, amounting to $373 million, early in the month. Additionally, the expectation of another Fed interest rate hike in the near future and increasing government bond yields may have contributed to negative crypto sentiment. Outside of the U.S., the devaluation of the Chinese yuan and the property crisis brought about by the downfall of Chinese property giant Evergrande produced downward pressure on Bitcoin's price.

While BTC is currently priced lower than its high of $30,000 in early 2023, this may actually be positive news for those interested in investing in it. Bitcoin has had numerous price dips throughout its history that have always been followed by substantial price increases. Given that a halving event will occur in April 2024, the current price dip could represent a fantastic opportunity to buy Bitcoin for a future profit.

Before investing in BTC, however, it’s essential to conduct both fundamental and technical analyses to make more informed investment decisions. Bitcoin’s historical performance doesn’t necessarily guarantee that its price will rise again in the future, and numerous factors may create upward or downward pressure on its price. In addition, given the volatility of the crypto market, investors must practice caution by investing only what they can afford to lose.

How to Invest in Bitcoin

Given Bitcoin’s volatile nature, it’s wise to proceed prudently with your investment in order to mitigate the risk of financial loss.

One way to reduce your risk exposure is to allocate a small portion of your total portfolio to your Bitcoin investment. Generally, a 1% allocation is a relatively low-risk investment, while investing up to 30% of your portfolio exposes you to a much more sizable loss if you sell Bitcoin at an inopportune time. Also, consider extending your portfolio to include stocks, bonds, real estate and other types of assets.

Buying low and selling high is the key to profiting from any investment, but this tack is particularly challenging in a highly volatile market. A proven way to tackle this challenge is with dollar-cost averaging. Rather than investing a large amount at one time and hoping you hit the dip at its lowest point, you can make smaller purchases at regular intervals. 

It’s also essential to choose the right crypto wallet to store your Bitcoin (hot wallet vs. cold wallet). A hot wallet is accessible on your phone or computer via the internet, and is typically provided by crypto exchanges. In contrast, a cold wallet lets you store your crypto assets offline. The accessibility of a hot wallet appeals to many investors, but the enhanced security of a cold wallet has considerable benefits as well. When choosing a cryptocurrency exchange for your Bitcoin transactions, it’s important to research the type(s) of wallet it supports. 

Bitcoin ETFs

Bitcoin exchange-traded funds (ETFs) allow investors to profit from investing in Bitcoin without actually needing to own the volatile asset. A Bitcoin ETF is a pool of funds from numerous investors that tracks and mirrors Bitcoin pricing, and is traded on prominent stock exchanges. Nevertheless, because Bitcoin ETFs are traded freely on an exchange, similar to stocks, their pricing can sometimes diverge from Bitcoin's actual net asset value.

Bitcoin ATMs

Bitcoin ATMs facilitate the purchase of Bitcoin, exchange Bitcoin for fiat currencies and are commonly located in major population centers worldwide. These ATMs function in the same way that traditional ATMs do, so you can expect absolute convenience with their speed and ease of use. However, they charge steep transaction fees of up to 20%, and offer little to no customer support when problems or questions arise.

Buy Bitcoin on a Reputable Exchange

As the largest cryptocurrency by market cap, Bitcoin is available for purchase on numerous cryptocurrency exchanges. Each cryptocurrency exchange has unique features and benefits that can directly affect your investment experience. One leading exchange is Bybit, highly regarded for its security measures. For example, Bybit has enhanced security functions to ensure the safety of users' withdrawals, and its digital assets are kept safe in cold storage. Bybit also offers over 100 different cryptocurrencies, and more than 300 spot trading pairs.

How to Invest in Bitcoin With Bybit

Bybit’s intuitive dashboard makes it easy to buy Bitcoin. After creating an account on Bybit, you can complete secure, quick purchases and trades without hassle. In addition, you can hold your bitcoins in an attached wallet or stake them to earn rewards.

Buy With a Credit/Debit Card

Through the Bybit interface, you can invest in Bitcoin using your credit/debit card or any other preferred payment method, such as bank transfer. To do so, follow the easy steps to link your desired payment method to your Bybit account. Once connected, you can complete a short purchase order form. After verifying the payment, your Bitcoin purchase will be finalized. The coins are then stored in your wallet until you’re ready to sell, trade or stake them.

Trade as a Spot or Derivatives Pair

With Bybit, you can trade Bitcoin as a spot or derivatives pair. Trades can be executed using stablecoins like USDT or USDC, depending upon the type of trading pair. Bybit is a robust exchange that provides numerous BTC derivatives to trade. Some of these include perpetual contracts, inverse perpetual contracts, inverse futures and options. Additionally, Bybit offers DCA trading bots to aid beginner traders interested in spot trading. With a multitude of trading options available, Bybit supports the varied interests and needs of crypto traders.

P2P HotSwap

P2P HotSwap is a peer-to-peer trading platform on Bybit that allows users to transact directly with advertisers and third-party liquidity providers, allowing them to enjoy a more competitive conversion rate. The system's smart recommendation filters analyze buyers' and sellers' preferences to match buyers and sellers sharing the most similarities.

Bybit Savings

Bybit Savings enables crypto investors to generate interest on their cryptocurrency holdings. The invested principal is protected, and the platform provides options for both fixed and flexible terms, accompanied by guaranteed annual percentage rates (APRs).

Liquidity Mining

Bybit also has its own liquidity mining feature, liquidity pools built on a revamped automatic market maker (AMM) model so investors can create a passive income stream by acting as liquidity providers. To do so, simply deposit an asset pair like BTC/USDT into a liquidity pool and profit from the yield generated by swap fees in the pool. Note, however, that like typical AMMs in decentralized exchanges (DEXs), liquidity providers on Bybit are susceptible to the risk of impermanent loss.

Dual Asset

Dual Asset allows investors to profit from short-term price movements in a volatile market with a short and flexible lockup period. While users can expect a yield, regardless of the price direction, it's crucial to note that if the asset price falls below the entry price during a downward trend, their returns on the settlement asset may be lower than their initial deposit.

Other Cryptocurrencies for Beginners to Consider Investing In

With more than 23,000 active cryptocurrencies available today, the investment opportunities are substantial. However, many crypto projects lack solid fundamentals and potential, and they ultimately fail. Beginning investors often benefit from long-term holds that don't require a strong understanding of market analysis, and eliminate the risk associated with frequent and speculative transactions. 

In addition to Bitcoin, other blue chip crypto assets could be well-suited for beginners interested in long-term holds. What other cryptocurrencies should you consider before you buy Bitcoin — or in conjunction with a Bitcoin investment?

Ethereum (ETH)

The second largest crypto by market cap, Ethereum has long been a leading crypto project, thanks to its extensive utility. While Bitcoin was created to function as a digital payment system, Ethereum leverages blockchain technology to build an entire digital economy with decentralized apps (DApps). Using the Ethereum virtual machine (EVM), developers can directly execute smart contracts and build DApps without the need for an intermediary. 

Ethereum's appeal to investors has grown recently, thanks to The Merge, which occurred after long anticipation on Sep 15, 2022. The Merge transitioned Ethereum’s consensus mechanism from PoW to PoS and effected multiple advantages, such as reduced energy consumption, deflationary pressure on Ether’s price and the opportunity for investors to earn interest by staking their ETH tokens. Notably, between November 2022 and August 2023, the price of ETH increased by over 40%.

Tether (USDT)

Unlike Bitcoin and Ether, Tether is a stablecoin. Compared to other cryptocurrencies, stablecoins are recognized for their price stability. USDT, despite being a digital currency, maintains its value by being pegged to the U.S. dollar. Its design also aims for simplified adoption and integration as it’s built on several blockchains, including Ethereum, Polygon, Avalanche, Tron, EOS and Algorand. Because of its price stability and functionality on numerous popular blockchains, USDT is often used for trading digital assets. 

While there may be many stablecoins in the market, Tether holds the distinction of being the largest one, with a market cap of $82.02 billion (Sep 12, 2023). This positions it as the third largest crypto, behind Bitcoin and Ethereum. Because it’s a stablecoin, USDT has experienced minimal price fluctuations over the years, a trend that’s projected to persist for the foreseeable future.

Ripple (XRP)

Ripple is one of the most environmentally friendly digital assets today, thanks to its distinctive XRP Ledger Consensus Protocol, whereby trusted validators collaborate to reach consensus over transactions. This unique protocol not only contributes to lower energy consumption but also facilitates swift transaction processing. In fact, Ripple has a transaction speed of 3–5 seconds — a stark contrast to Bitcoin or Ethereum, which can take minutes or even hours. Furthermore, its transaction fees are significantly lower, at only $0.0002 on average.

From August 2013 to September 2023, XRP's price rose by over 9,000%, with a surge of more than 55% over the past year. Ripple boasts a market cap of $25.12 billion, making it the fifth-largest digital currency.

However, Ripple has been embroiled in a legal battle with the Securities Exchange Commission (SEC) since December 2020. While it's uncertain whether the outcome will be favorable, a positive verdict could lead to a sustainable price surge for XRP. Those interested in investing in Ripple should conduct thorough research on the ongoing SEC case before deciding to buy the XRP token.

Cardano (ADA)

Cardano’s blockchain technology is often compared to Ethereum’s. Both networks support smart contracts and DApps and are popular among developers in the blockchain space. However, Cardano's distinguishing feature lies in its layered architecture: the settlement layer handles the transactions, and the computation layer operates the smart contracts and DApps. This approach allows for increased flexibility in the use, design and privacy of smart contracts and DApps. Additionally, Cardano employs a unique PoS protocol called Ouroboros, an environmentally sustainable protocol that enhances the security and scalability of the network.

Cardano has a current market cap of $8.61 billion, making it the ninth-largest cryptocurrency. Between October 2017 and September 2023, Cardano's price rose by almost 900%. Cardano's dedicated efforts in developing its ecosystem, particularly through initiatives such as multi-chain solutions to improve its interoperability, make ADA a potentially attractive long-term investment.

Polkadot (DOT)

Polkadot has a unique decentralized protocol that fosters full interoperability and scalability by connecting parallel blockchains to its main blockchain. This architecture ensures the seamless and secure flow of data and value between blockchains without relying on an intermediary. Thanks to the efficiency of the parallel blockchains in handling the majority of transactions, Polkadot possesses a high transaction speed of over 1,000 transactions per second (TPS). Furthermore, as any blockchain can join Polkadot's main chain, the range of use cases is extensive, providing the flexibility to develop a wide variety of blockchain projects. 

With a current market cap of $5.11 billion, Polkadot ranks as the 13th largest cryptocurrency. While its price appreciation has been relatively moderate, charting an increase of just over 40% from August 2020 to Sep 2023, it’s important to note that this open-source project is still in its early stages. Polkadot boasts a realistic road map, a strong community and considerable upside potential that could make it a wise investment. 

Closing Thoughts

Investing in Bitcoin has been lucrative for many crypto investors over the years, but some people have lost a considerable amount of money through poor timing and various other factors. When investing in Bitcoin, consider using dollar-cost averaging, moderating your investment amount and diversifying your investments across other cryptocurrencies and non-crypto assets. These strategies can effectively mitigate risks and increase the likelihood of a net profit.

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