invest in bitcoin: what is it?
Although bitcoin is very different from most other traditional financial assets, it has quite a bit of similarity when it comes to investing. it is different but similar to investing in stocks, bonds, currencies and more, but it is a digital asset instead of a physical one.
gold or a company’s stock exists physically, while bitcoin acts as a digital product or collectible. the first recorded bitcoin price was $0.003. since then, bitcoin has reached a price of $60,000 in 2021.
Reading: Is bitcoin a good investment
In the longer term, the price of bitcoin has risen steadily given enough time. Anyone who has bought bitcoin since it happened has realized that they have made a profit if they hold onto the asset. if that pattern continues, bitcoin could hit $500,000.
is bitcoin a good investment? a look back at 2021 performance
With such a substantial return on investment in the past, investors will often wonder if bitcoin is a good long-term investment or if the best returns lie in the past. 2020 was a very strong year for bitcoin as the stimulus due to the pandemic sent central bank printing presses running at full speed. Due to this, investors started hoarding bitcoins as it is in limited supply.
As there will only be 21 million btc, it creates scarcity, especially in the face of massive printing of US dollars. those who feared inflation and had cash reserves that were losing value began buying assets, and some of that flowed into the cryptocurrency markets. this was the start of a significant uptrend.
However, the market was way ahead in 2021, breaking above the $60,000 level. At that point, the market has pulled back, and as we have seen in 2022, bitcoin has fallen dramatically. we’ve seen selloffs before, and bitcoin has always managed to bounce back. bitcoin is a bet that cryptocurrencies are a disruptive technology.
With uncertainty, there is opportunity. this is a market that has been overbought, followed by oversold. If the Federal Reserve finds itself in a situation where it has to change its monetary policy due to a recession, that could be the catalyst for the next big bull run in bitcoin.
invest in bitcoin in 2022: is it a good idea?
A 100 million% return on investment over the last decade suggests that investing in bitcoin is almost always a good idea. when you will buy or sell is the hard part of maximizing returns and profiting from the market and its high volatility.
As 2022 has shown, bitcoin can certainly drop drastically. however, history has shown us that any time the market falls like this, it is only a matter of time before it recovers. Problems in the crypto world are both external and internal at the moment, and if crypto is something you think will survive, bitcoin will almost certainly remain at the forefront. with bitcoin, it’s a bit of a binary question. the question is, “will cryptocurrencies stay?”
Longer-term holders, also known as hodlers, will see 2022 as another opportunity to gain value in a market that will eventually hit $1 million. whether or not that will be the case is an entirely different question, but at this point, there is nothing to suggest that we could not see another explosive move to the upside. It’s worth noting that every time we crashed like this, the market made “higher highs.”
bitcoin fundamental analysis
Bitcoin and other cryptocurrencies have different fundamental analysis metrics than other assets. one of the most important is the network hash rate or the amount of activity. after all, it stands to reason that the more work that is done on a network, the greater the demand for the currency.
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another type of fundamental analysis will look at how much btc is being held on cryptocurrency exchanges and cryptocurrency trading platforms. As a general rule of thumb, most analysts believe that the less bitcoin held in these places, the better because it means people aren’t looking to sell their holdings. Despite the volatility and price, this hash rate chart shows just how steady user growth has been on the bitcoin platform over the past three years.
bitcoin technical analysis
Technical analysis can be somewhat subjective, so keep that in mind when looking at charts. However, it gives you an idea of how the market is “inclined”, in the middle of 2022, bitcoin has fallen somewhat strongly. however, the $20,000 region and the $12,000 region suggest that there could be large amounts of buying in that area, indicating that the downtrend is almost exhausted. In other words, it could open up an excellent long-term buying opportunity.
learn more about technical analysis
bitcoin sentiment analysis
Doing a bitcoin sentiment analysis involves looking at several things at once. you can search for the term “buy crypto” and see how much interest there is. ironically, the more activity you see, the closer you are likely to be to the top of the price. in mid-2022, sentiment dipped quite low on this metric. that’s a good thing for the cycle, as it suggests that many of the “weak hands” have been eliminated.
You can also search to find out what some industry leaders think. Paul Tudor Jones, one of the world’s most respected billionaire hedge fund managers, believes bitcoin will be the fastest racehorse in the race against inflation, comparing it to gold in the 1970s.
As there will only be 21 million btc in existence, it creates a certain amount of scarcity and therefore there will always be a certain amount of demand. You can also consider the US Dollar Index as a form of sentiment analysis because, as a general rule, people buy more US dollars in times of anxiety. in times of stress, they don’t buy assets on the risk spectrum like cryptocurrency. Another market you can use to extrapolate sentiment is the stock market. the higher it goes, the more likely it is that we will see “hot money” flowing into cryptocurrencies.
expert expectations and bitcoin price predictions
Keep in mind that no one knows the future. however, some experts have publicly suggested what they think the future price of bitcoin will be. while it cannot guarantee that any of these predictions will come true, it does provide an insight into how some experts believe the market will develop.
venture capital investor tim draper recently forecast that bitcoin will reach a price of $250,000 in the next two years. however, in 2022, the Fed has turned to a very aggressive stance, and he has reversed some of that optimism. he recently suggested that bitcoin could be choppy with slightly bullish sentiment in the next 12 to 24 months.
edward moya, senior market analyst at oanda, has suggested that some of the selling pressure in 2022 is easing, but the biggest buyers may not show up until later in the year. he believes that “cryptocurrencies are not going away, and some investors are starting to believe that the additional downsides might be limited.” this echoes the same sentiment seen during the last “crypto winter”. Like many other pundits, he believes that bitcoin will break the $100,000 level in the next bull run.
nigel green, the chief executive of financial advisory group devere, has recently stated that bitcoin will rebound when the stock market does and that the worst of the sell-off is over. he believes the bottoming out may be slow, but new highs will eventually be reached, perhaps sometime during 2023. in other words, bitcoin could be “for sale” during the 2022 crash.
learn more about bitcoin price predictions
ways to invest in bitcoin
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investing in bitcoin in the early years was challenging. you had to mine bitcoins or get it as a gift from someone else. now it only takes a few clicks to invest in bitcoins or buy bitcoins online. Once you have obtained bitcoin, you can decide on various investment methods. Some of the most common bitcoin investment strategies are:
buy and keep
Buying and holding bitcoins involves first buying bitcoins on a spot exchange or other cryptocurrency trading platform and storing them in a wallet. the wallet may be on an exchange or in long-term cold storage. (cold storage refers to wallets that are not connected to the internet).
While not as risky as many other forms of bitcoin investing, it does carry risks. In 2019, bitcoin rose from less than $4,000 to $14,000. the following year, it dipped below the $4,000 level again. in 2021, bitcoin broke the $60,000 barrier, but by june 2022, bitcoin was trading just below the $20,000 level. in other words, it is an extraordinarily volatile asset, so its value can change dramatically if you simply hold onto it.
trade
Instead of buying and holding bitcoins, investors can also trade their assets at every high or low price. There are two main ways to do this, spot trading or derivatives trading.
Spot trading involves buying bitcoin and trying to sell it at higher prices. this is how most people think of the stock market as an example. you buy something, hoping to appreciate in value. you can jump out of the market and sit in cash if the market crashes.
If a trader buys 1 bitcoin for less than $4,000 and then sells it to the 2019 high of about $14,000, they make roughly $10,000. That $14,000 the trader now has could have been used to buy bitcoin when it fell below $4,000 once again and still left $10,000 in the account.
However, when trading a derivative contract, the situation is quite different. For starters, traders can use leverage to control more than one asset. 100x leverage means your profits could be 100x what would have been possible in the spot account. Note that it works both ways, meaning your losses can add up, but simple money management is used to prevent that from happening.
In the above example of bitcoin rising from just below $4,000 and reaching $14,000 that same year, a trader could have made $10,000 on the way up and then $10,000 on the way down if he shorted it. that would be a profit of $20,000. however, at 100x leverage, that $20,000 profit is closer to a $2 million profit. more information
pros and cons of bitcoin
While bitcoin has been a good investment so far, there are several pros and cons you should be aware of when considering investing in bitcoin.
advantages
- Bitcoin has the most significant return on investment of any financial asset since its inception.
- Bitcoin has outperformed gold, stocks, oil, etc., over the last decade.
- Bitcoin was the first cryptocurrency.
- Bitcoin is digitally scarce, which makes it rare and valuable.
cons
- As unlikely as it is, bitcoin could go to zero.
- Bitcoin is very volatile, so price fluctuations can sometimes be violent.
- la regulatory outlook for bitcoin is still unclear.
- the full value of bitcoin may take years to realize.
how much to invest in bitcoin?
how much to invest in bitcoin will ultimately be up to you and your comfort level. The most common advice people get when investing in anything, let alone when they start investing in bitcoin, is to never invest more than you can comfortably afford to lose.
In the future, bitcoin could reach $500,000, or it could also go to zero. there is no way of knowing what will happen, but with technology this new comes a binary outcome. in other words, it will be adopted or it will not be adopted. if adopted, the scarcity of bitcoin could make it one of the most popular assets in the world.
It might be worth starting small with small bitcoin increments before jumping into a larger investment. bitcoin can be purchased in any denomination, the smallest amount being 0.00000001 btc, also known as “satoshi”.
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