The digital market is constantly developing, even despite the fall in prices and trading volumes. To decide whether to invest your own money in a cryptocurrency or not, you need to understand what financial benefits it will bring and what risks you will have to face.
Risks and Disadvantages of Investing in Bitcoin
- • The Issue of Scaling. The bitcoin network grows over time as the number of bitcoins increases. However, the bandwidth of the cryptocurrency network does not change, which is why today there are problems with transfers. One of the biggest negative consequences is the increase in the time it takes to transfer Bitcoins from the sender to the recipient. Quite often they just get stuck on the network.
- • Bandwidth limitations mean that small bitcoin operations are unprofitable. The problem has been tackled by Segregated Witness and Bitcoin Unlimited, but they have not managed to completely eliminate it. Therefore, if the protocol remains the same version as it is, the system will be able to process fewer and fewer bitcoins, which will lead to a decrease in the attractiveness of bitcoin for investors. Bitcoin owners who prefer to keep their funds on their local wallets instead of exchanges suffer the most from the problem. In order for their bitcoins to get into the system, they need to be transferred from their own storage, which in today’s world takes a lot of time and nerves.
- • The possibility of the formation of a bubble. Many investors have big doubts about whether to invest in Bitcoin for this specific reason. The thing about Bitcoin is that in less than five months, its price has increased almost twofold. These kind of spikes are common with this cryptocurrency, and it can go both ways. The current growth rate we are witnessing does not necessarily have to be regarded as a bubble that will surely burst. Of course, Bitcoin’s volatility is very high, but that should be expected from an asset with such profitability. In the end, many analysts predict a speedy decrease in Bitcoin’s value due to the stabilization of the development of the world’s most popular currency.
Advantages of Investing in Bitcoin
- • User trust in the system. Bitcoin turned out to be incredibly popular. Even during the stages when it was declining, it subsequently grew upwards sharply. Nowadays, a huge number of Bitcoin users act as a kind of guarantee for its stability. It is deeply ingrained into the lifestyles of millions. Several million literate people cannot trust an unreliable asset, right?
- • Independence from external events. Bitcoin can only be negatively affected by computer system malfunctions. Concerning political, economic, and social events, most of the time bitcoin does not care. Since it is completely decentralized, events in a certain country or region will not affect the cryptocurrency in any way.
- • Low level of control. Nowadays, Bitcoin is one of the two means of payment, the second being physical cash, control over the circulation of which is almost impossible to maintain. This makes it incredibly convenient. The supervisory authorities do not know how much money you have, where you keep it and what you spend it on. This is how Bitcoin originally gained a big following by finding use on black markets like the Silk Road.
- • Relatively stable growth. In the entire history of the existence of Bitcoin, there have been big falls, of course, but they are a rare occurrence. On average, once every 2–3 years. Fourfold growth in 2016 practically nullified any future drops. Investors that choose to invest their money into Bitcoin are likely to avoid encountering any drawdowns within a year.
- • High liquidity. Selling a Bitcoin when the need arises is not much of a problem. The number of bitcoin exchanges keeps increasing every year, with some outlets even accepting the most popular cryptocurrency. Any exchange you go on, there will always be someone willing to sell or buy some Bitcoins.
- • Low commission fees. Maybe not the most important advantage of Bitcoin, but valuable nonetheless. Nowadays, the storage and exchange of Bitcoin is accompanied by commissions, but in very small amounts. This favorably distinguishes Bitcoin from its banking counterparts. As financial institutions continuously increase their fees for their services more and more, this advantage will continue to rise to the forefront.
Is Bitcoin a good investment for the future?
Investing into cryptocurrency is a great way to earn income if your savings aren’t that significant.
Even if the price experiences significant drawdowns, most of the time you will not lose that much if you are planning on doing this as a long term activity.
As a matter of fact, should the price increase, the profit almost always overshadows any previous losses.
Bitcoin is becoming increasingly ingrained in our society and economy, which is precisely why it should be seen as a long term investment.
It isn’t going anywhere. As for investors willing to invest large sums of money, it is highly recommended that they distribute the funds among several different cryptocurrencies.
Even if only one of those cryptocurrencies experiences a surge in its price, the income will likely be significantly bigger than if they were to use traditional investment tools.