Bitcoin is the hottest thing on the market today. Its value has skyrocketed thousands of percentage points in the past year alone. But many of us still don’t know exactly what it is. I am going to explain what Bitcoin is so that you can make an educated decision on whether or not you should invest in it.
What is Bitcoin?
Bitcoin is a type of cryptocurrency. Cryptocurrency, simply put, is a type of digital currency that has zero physical substance. It is essentially a string of code. Its purpose is to eliminate the middleman, or bank, from transactions and allow you to make payments in a matter of minutes. There are thousands of different types of cryptocurrencies to choose from. However, Bitcoin is the king of all cryptocurrencies. A term you will hear thrown around a lot in the cryptocurrency world is “alt-coin.” “Alt” is short for alternate and an alt-coin is any type of cryptocurrency that is not Bitcoin. Two of the most popular alt-coins are Litecoin and Ethereum. If you study the value trends of most alt-coins, you will see that their value follows the pattern of Bitcoin. When Bitcoin goes up in value, so do the alt-coins and vice versa.
Is it Legit?
As I mentioned before, cryptocurrencies have no physical substance. On top of that, they have no government backing. There is nothing stopping their value from plummeting to zero in one day. Also, they are only worth what the next buyer is willing to pay for them. Their value is unpredictable. Therefore, before investing in any type of cryptocurrency, you should research its fundamentals and be sure that it actually serves a purpose.
However, many large, well-known companies are now accepting Bitcoin as payment including Overstock.com, Expedia.com, and Microsoft among others. Also, if you type AmazonBitcoin.com into your web browser, you will be surprised to see that it will direct you to Amazon.com. Amazon has bought this domain along with a few others with a type of cryptocurrency attached to the end of their name. This makes me question if Amazon will begin accepting Bitcoin as payment. If so, I do believe that Bitcoin’s value will skyrocket as a result. Bitcoin has also made its way into the futures market and is now included in a few ETFs and mutual funds. The fact that it can now be traded on legitimate exchanges makes me believe that it may be here to stay.
What are the risks?
The growth of Bitcoin and other alt-coins almost seems too good to be true. Its growth is very similar to the .com bubble of the early 2000’s and the 2008 housing bubble that sent the US into the Great Recession. Also, the value of cryptocurrency is very volatile, meaning that its value may increase by 50% in one day, but it also may decrease by 75% the next, and there is no way to predict its next move. Even more, many countries are now cracking down on cryptocurrencies and are trying to place regulations on them or make them illegal completely. When this kind of news surfaces, it often devastates the cryptocurrency market temporarily. There is no telling what the future holds for the cryptocurrency market.
How much should I invest?
As I mentioned, investing in cryptocurrency is very risky. Therefore, I would not suggest investing more than you’re willing to lose completely. A rule of thumb that I follow is the 5% rule. At the most, I would suggest investing 5% of the money that you have. This will not break you if you lose it. However, you could potentially double your investment in a matter of weeks or even days. If you want to buy Bitcoin or one of a few alt-coins, you can buy them at Coinbase.com. If you sign up using this link, each of us will receive $10 worth of Bitcoin when you buy or sell $100 worth of cryptocurrency. You are able to purchase fractions of a cryptocurrency so no, you do not have to spend $10,000+ to buy an entire Bitcoin.
Cryptocurrency is the most popular thing going right now. It provides a fast and easy way to make a quick buck. However, it is incredibly risky as there is no way of predicting its next move and countries are beginning to crack down on it. I am not advising you to invest in Bitcoin or any other type of cryptocurrency, I am just giving you the facts so that you can make an educated decision on your own. Thank you for reading and remember the 5% rule. Also, please let me know if you’d like to see more posts about cryptocurrency!