Traditional investors have always approached digital currencies like Bitcoin with an additional precaution due to their highly volatile market value. However, the overwhelming performance of Bitcoin as an investment and a currency has attracted the likes of traditional investors over the past few months.
Bitcoin as an investment tool provides investors with three significant advantages over traditional investments: liquidity, high market demand, minimalistic trading.
Bitcoin is regarded as one of the most liquid assets in the financial market today because of the global establishment of Bitcoin exchanges, trading platforms, and brokers.
Investors or holders of Bitcoin can easily trade Bitcoin for cash or for other assets like gold and cryptocurrencies instantly, with low fees, unlike shares of a company or publicly traded funds that require the operations of a third party institution like a stock exchange to process and settle orders.
Regions like Venezuela, Brazil, and Argentina that are known for its strict and rigid financial regulations that disallow the trading of foreign currencies and assets also have their fair share of Bitcoin exchanges and trading platforms, which enable holders of Bitcoin to transfer their wealth outside the country, bypassing the country’s government.
The high liquidity of Bitcoin creates a viable ecosystem for investors to trade in, especially those that are looking for short-term profit. The digital currency is also a practical long-term investment, because of its particularly high market demand.
High Market Demand
Traditional investors quite often question the demand and value behind Bitcoin. Investors that have limited knowledge in technology struggle to understand the economics behind Bitcoin and how its market value is determined. Ultimately, like any asset in the market today, the value of Bitcoin is directly dependent on its demand.
Unless the demand for Bitcoin completely evaporates, the value of Bitcoin will continue to increase. The market cap of the currency that is now close to US$10 billion, was less than US$1.3 billion merely three years ago.
Bittylicious, Founder of Marc Warne, explains:
“Bitcoin will be used more in the future because it’s the first time that something not fully controlled by any entity like a government or bank has been used over the internet. It has been around for about seven years now without any fundamental issues.”
The high market demand for Bitcoin guarantees Bitcoin investors a bright long-term future, since Bitcoin, in theory, is a deflationary currency. The value of Bitcoin will continue to rise until its available supply maximizes.
Stock trading or any activities in the public stock market require investors to hold a license or certificate that proves their identities and trading history. To trade a share of a company, an investor has to go through a broker, who then creates an order in the market. The settlement of an order could take days, weeks, or months.
Stock exchanges also demand the submission of various personal details and financial accounts, such as bank statements, billing statements, and personal identification, which makes it extremely difficult for unlicensed investors to invest.
Bitcoin trading however, is a more minimalistic form of investment compared to stock trading. Investors simply purchase or sell Bitcoin from exchanges and store them in their wallets. While some exchanges may ask personal details for KYC regulations, other local exchanges carry out orders anonymously.
In all, Bitcoin provides significant advantages over traditional investments in many ways, financially and economically. Traditional investors can trade the digital currency with higher efficiency and low costs, making Bitcoin a viable short- and long-term investment.