Josh Althauser is a tech entrepreneur and open source advocate specializing in providing mentorship for startups for their marketing technology. You may connect with him on Twitter.
Bitcoin’s value is soaring. Over recent months, the cryptocurrency has hit record highs. In early May of this year, the open-source digital currency ballooned to almost $3,000 a coin. Last May, one coin fetched only $450. By no means is this growth a sudden trend. Bitcoin’s value has been steadily increasing since its inception in 2008, nearly a decade ago. Still, many remain hesitant to invest.
The theft of hundreds of thousands of Bitcoins from the now-infamous Mt. Gox may still haunt investors. Or perhaps the volatility, as the Bitcoin market is 26 times more volatile than the S&P 500, and the lack of governmental oversight have speculators forecasting disaster. This is understandable as Bitcoin is not backed by a precious metal, a country or a bank. It’s regulated by sentiment alone. Although there are clear advantages to a market structured like this, there are serious obstacles and dangers that cannot be ignored. If you’re willing to stomach the risk, however, investing in Bitcoin may be a worthwhile endeavor.
Should you still invest in Bitcoin?
1. It’s experiencing incredible growth.
The currency suffered greatly due to the theft of millions of dollars worth of Bitcoins in 2014, but has recovered quite quickly in the span of two years and is now experiencing rapid growth.
In February of this year, Bitcoin surpassed one troy ounce of gold in value. It’s now surpassing the value of gold by even larger margins. If you happened to invest meagerly in Bitcoin in 2011, you would have already seen massive returns. For example, an $100 investment would have garnered you approximately $600,000 if you sold this May.
2. The supply is fixed.
21 mln Bitcoins are scheduled for release. No more, no less. It is likely that every Bitcoin will be in distribution around the year 2140. Each year, the number of Bitcoins slated for circulation is halved, slowing the process significantly. A currency with a fixed supply seems counterintuitive to some. Fiat currency is printed as needed. More money is circulated as time goes on.
According to Bitcoin’s website, “Bitcoin is intended to inflate in its early years and become stable in its later years... With a stable monetary base and a stable economy, the value of the currency should remain the same.” Although it might be predicted that a lower supply results in hoarding and deflation, this most likely will not be the case for the currency as the fixed supply is expected.
3. Bitcoin may be an effective way to diversify.
Investors are beginning to take Bitcoin more seriously. In 2011, Bitcoin was virtually unknown. Now, it regularly appears in the mainstream news. Kiosks devoted to trading Bitcoins have sprung up. Increasingly, digital currency is being used for everyday transactions, international trade and as investment vehicles.
Adoption rates have risen and trust in the digital currency has strengthened steadily. Cryptocurrency itself is widening as dozens of competing alternatives based on Bitcoin technology (aptly named altcoins) flood the market. JP Morgan Chase, Intel and Microsoft even came together to back the Blockchain currency Ethereum.
“More and more investors are looking for unique opportunities outside the traditional arena,” writes Bobby Cho for The Street.
“[B]itcoin is emerging as a viable alternative asset class for institutional and retail investors alike. It has an enormous amount of investment potential and is unlike any investment product in the world today.”
Bitcoin has grown exponentially. But, by the same token, the currency’s upward climb hasn’t been without setbacks. Mt. Gox underscored fears about the mercurial nature of the peer-to-peer currency. Millions of dollars were lost likely due to undetected theft, leaving supporters and skeptics alike with concerns about its security and long-term viability. However, it has taken these losses in stride. The Blockchain currency has surged well over its pre-Mt. Gox market value this year, experiencing two all-time highs in the span of a few months.
The original public ledger provides unique opportunities to investors who are willing to steel themselves against downturns and remain calm during record surges. The supply of Bitcoins is fixed, which may stabilize the currency over time. Moreover, faith in Blockchain currency is expanding as giants like JPMorgan Chase, Intel and Microsoft have already shown their support of cryptocurrency. Therefore, Bitcoin is currently experiencing wider adoption and is being taken more seriously as an investment vehicle.
If you are serious about adding Bitcoin into your portfolio, you’ll need to exercise caution. When investing in cryptocurrency, you should only risk as much as you’re willing to lose. Continue to conduct your own research, monitor Bitcoin’s growth and assess the currency’s weaknesses. Shrewd investment bolstered by thorough research could, in fact, lead to immense returns.