In the year 2022 almost everyone has heard about Bitcoin (BTC). From the Venezuelan worker escaping hyperinflation by buying crypto to the NY uber driver keeping TradingView on while driving you to your favorite restaurant. Crypto as a whole is no longer crazy voodoo magic, but a tangible asset that everyone can acquire – and Bitcoin is here to lead it.
Bitcoin is the oldest and largest cryptocurrency. It emerged in 2009 when an anonymous developer working under the pseudonym Satoshi Nakamoto made the first Bitcoin transaction. 13 years later, Bitcoin holds $400 billion in value.
Advantages of Investing in Bitcoin
There are more than enough advantages to investing in a decentralized digital asset with a limited supply that escapes the reach of all banks and governments. But for the sake of this article, I’ve decided to keep it short and give you the top 5 advantages of investing in Bitcoin.
Everyone can buy Bitcoin. It doesn’t matter who you are or where you’re from. You can invest in it as long as you have an internet connection and spare cash. It takes just five minutes to register an exchange account and purchase Bitcoin with a debit card. And if you’re from a country with no access to modern banking systems, you can still obtain BTC by buying directly from another person via OTC (over the counter) or P2P (peer-to-peer) sales.
You don’t need a minimum amount to invest nor a financial background or broker certificate. All you need to buy Bitcoin is the will to do so.
Because of the size of the crypto market, Bitcoin is extremely liquid. You can buy Bitcoin whenever you want, in as much quantity as you want. The market will instantly fill your order and you’ll become a proud Bitcoin owner.
Bitcoin is an extremely decentralized asset. But what does decentralization mean? It means that everyone can participate in the Bitcoin network and send money over it. You can join the network as an investor, miner, or user. And when you do so, you don’t interact with a centralized entity that manages the network, but with millions of people all around the world who use Bitcoin to make their life easier.
Decentralization means that no one can steal or freeze your assets. Bitcoin was invented by an anonymous individual who disappeared from the face of the earth a decade ago. The code behind Bitcoin makes it impossible for the founder of anyone else to manipulate the Bitcoin network or its subsequent wallets.
You don’t have decentralization anywhere else. In traditional finance, you risk the chance of having your account deleted by a broker website or your assets frozen by a bank. Even if you make money investing, you’re technically not safe until you convert it into cold hard cash.
3. High Long-term Returns
Bitcoin is the best performing asset of the decade. Up until now, it had delivered an annualized return of 230% – performing ten times better than the Nasdaq 100. Although Bitcoin faces much higher volatility than any other stock or asset, it sees long-term growth on higher time frames.
Bitcoin was sold for mere dollars when it first came out. By 2013, people were selling it for a thousand dollars. The price reached $20,000 in 2017. And by 2021, $69,000.
Although many like to compare Bitcoin to the Dutch tulip mania from the 17th century, the truth is that on a long-enough time scale, Bitcoin tends to only rise in value. The all-time high of one market cycle becomes the bottom of the next one, and so on.
You can deduct from the observation above that Bitcoin becomes more valuable the more users and investors it attracts. That’s the reason why certain investors buy Bitcoin at all prices – believing that the asset’s valuation will only grow.
The stock market saw many crashes. There’s the great depression from 1929, the stock market crashes during the 80s, 2008, and most recently, the COVID crash in 2020. Yet despite all these crashes, the S&P 500 Index has only risen in value over the past hundred years. Will we see Bitcoin do the same?
4. Instant transactions
Bank transfers take a few business days to process. And if you transfer more money than you usually do, the bank might put your transfer on hold and ask you a million questions before fulfilling your request. Since when can’t we do whatever we want with our own money?
In the meantime, Bitcoin takes only 10 minutes to process your transaction. You can send as much money as you want to whoever you want. No one can freeze your transaction, nor will anyone ask you anything. To make things even better, your identity is completely anonymous on the blockchain and no one, especially not banks or governments, knows what you’re doing.
Now imagine the painful process of transferring huge swaths of money from your bank account. Or the questioning you would get for completely emptying your bank account. And if you stored your wealth in commodities or assets that aren’t cash, imagine the carbon foot produced by – for example – transferring millions of dollars worth of gold.
And since I have already mentioned transactions, think of the fees that you save with Bitcoin. How much money do you have to waste sending domestic wire transfers? And how much more expensive is it to request international wire transfers? You won’t spend more than a few dollars in transaction fees when sending money over Bitcoin.
5. Store of Value
Believe it or not, Bitcoin is a store of value asset. Yes, it might not have performed so well in this role in the fight against inflation. It hasn’t even escaped the correlation with stock markets. But in countries where hyperinflation rampages, Bitcoin has proved its worth more than enough times.
Venezuela, Argentina, Turkey, Japan, the Eurozone: these are all places where the local currency has drastically lost its value against the dollar (some more than others).
In Venezuela, where stacks of cash aren’t enough to buy a loaf of bread, citizens flock to OTC markets to buy Bitcoin and minimize the damage done to their monthly paychecks. Turkish citizens have done the same after the Lira collapsed. Europeans have also become curious about Bitcoin after the Euro reached parity with the Dollar – and a looming energy crisis is poised to harm the old continent even more.
Despite its crashes and correlations, Bitcoin still does a fairly good job of preserving value. And if you believe that bear markets will decimate your wealth, simply convert your Bitcoin into stablecoins and buy back lower!
Disadvantages of Investing in Bitcoin
There are pros and cons to everything. You should know that investing in Bitcoin comes with a few risks. Here is a list of disadvantages that you should know about before investing.
Volatility is both good and bad. Bitcoin’s extremely high volatility means that there are price increases of up to 600% per market cycle. But it also means that we can potentially see as much as 50% in losses. Bear markets exist in the cryptocurrency market, and Bitcoin is no stranger to it.
You should be wary of Bitcoin’s volatility. If you invest at the wrong time, you might be in the red for months before you break even. A long-term market investor won’t care about temporary dips in the market, but someone who cares much about risk management will.
The number one rule of Bitcoin is: there are no refunds. Once you send Bitcoin to someone there is no way to cancel your transactions or to get your money back. Immutability means that transactions are permanent and that no one can change the ledger (the Bitcoin network). And decentralization means that no central entity (like a bank manager) can return your money.
Why is irreversibility a disadvantage? Because if you send money to the wrong person, you have lost it forever. All you can do is wait and hope that the other person might return it as an act of goodwill.
Irreversibility is why most investors send test transactions first. They send a tiny amount of Bitcoin to an address to see if it works. And if it does, they send the remaining amount. Bitcoin addresses are strings of random letters and numbers, so it’s easy to type in the wrong address – that’s why you always copy & paste!
Bitcoin is digital and decentralized peer-to-peer cash. You use it for payments and storing wealth. Much like cash, you can’t use it for anything else apart from paying for goods and services. There’s also the speculative value, but there’s almost no other utility in sight.
Other commodities, assets, and even cryptocurrencies are different in this regard. You can wear gold on your ring finger or around your neck. You fuel your car with oil. But with Bitcoin, you can only keep it or spend it.
Other cryptocurrencies are better in this regard. For example, Ethereum delivers smart contracts that allows users to arrange deals and create powerful applications over the blockchain. Chainlink connects blockchains and offers live price data via decentralized oracles. Monero allows you to completely hide your trace on the blockchain and evade the oversight of regulators and governments. The list goes on.
Should you Invest in Bitcoin?
Bitcoin has both pros and cons. It is a risky asset, but offers much higher returns than any other asset. It is decentralized, but completely unregulated. It can be used as a store of value, but in times of crises it suffers the same fate as the stock market.
Whether it is smart to invest in Bitcoin depends on you. Do you have the risk appetite for Bitcoin? And do you understand the technology behind it to successfully set up a wallet or send transactions? Are your expectations well-adjusted and based on objective market data and not someone’s fantasies? If the answer is yes to most of these questions, you’re ready to continue researching Bitcoin and slowly come to a final decision.
If you want to learn more about Bitcoin, I suggest reading the following articles:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.