Is Bitcoin Still The Most Reliable Crypto Investment?
Physical depiction of cryptocurrency tokens
Bitcoin is the world's most popular cryptocurrency, with a market value of around $850 billion that trumps all others by a significant margin. That being said, Bitcoin's volatility is well-documented, and many investors are leaning towards other cryptocurrencies for more reliability and the chance to be an early investor.
What started as an unknown coin in 2009, Bitcoin shook the world over the past decade and eventually reached its peak price of $69,000 in November 2021. It then dropped to around $35,000 in January 2022.
Despite the volatility, a Goldman Sachs analyst predicted that Bitcoin could reach $100,000 in the near future. Although it doesn't yet have the same status as gold, Bitcoin is gradually gaining acceptance. It could be a good alternative to traditional assets for investors with risk tolerance. If you’re looking to invest in Bitcoin but are wary of its reliability and fluctuations, here’s everything you need to know about it.
What Is Bitcoin And How Does It Work?
The concept of digital money is relatively simple. Most of us are used to transferring money from one bank account to another. Like other digital assets, bitcoin uses peer-to-peer payment methods. This eliminates the need for banks to collect a commission on every transaction.
Each bitcoin is created using an encryption code. This code is a string of numbers and letters that can be used to unlock it. Like other digital assets, bitcoin is decentralized. This means that it is not subject to regulation by a financial authority, such as a central bank. Most platforms will allow users to make purchases using credit cards.
Why Has Bitcoin Dropped?
The price of Bitcoin fell significantly in December 2021. Other cryptocurrencies followed suit in the course of the year. The decline in the price of Bitcoin was caused by the Federal Reserve’s decision to raise interest rates in January. As of February 2021, the price of Bitcoin was around $37,000.
The turmoil in the market was caused by various factors; these included uncertainties around the US and UK's interest rates and China's ban on cryptocurrency transactions.
Is Bitcoin A Good Fit For Your Investment Portfolio?
A cryptocurrency trading platform
Any trader that invests in multiple instruments will tell you the importance of coupling high-risk investments with reliable ones. Whether or not Bitcoin is a good fit for you depends on how risky your investment portfolio actually is.
Unlike the stock market, which usually opens and closes during the week, Bitcoin is available to investors 24 hours a day and can be traded on various cryptocurrency exchanges. While it's important to keep an eye on the market during peak times, it's also best to participate in the crypto trading sessions when the prices are high.
Some investors have gravitated toward Bitcoin due to its uncorrelated nature. However, since its price is volatile, it's important to keep a low allocation to Bitcoin to avoid getting too exposed to its volatility. According to Alex Chalekian, the CEO of a financial firm in California, retail investors should limit their Bitcoin holdings to around 1% to 3% of their total assets.
One of the main reasons people are starting to add Bitcoin to their portfolios is that it can be a non-correlated asset used in a traditional account. Despite its uncorrelated nature, Bitcoin's correlation to the stock market has been increasing. This could be due to the increasing number of institutional and individual investors who are starting to embrace Bitcoin.
If you're not comfortable with investing directly in Bitcoin, various exchange-traded funds can help you get exposure to the cryptocurrency. One strategy commonly used to get started is to invest into stocks of companies involved in the cryptocurrency industry or holding cryptos in their balance sheet. Some of these include PayPal andTesla.
Risks Of Owning Bitcoin
Although Bitcoin is a relatively new asset when compared to other financial markets, its volatility is higher than that of stocks. This makes it a risky investment, but it's also an attractive option for higher returns. Various factors contribute to Bitcoin's volatility. One of these is speculation regarding the utility of cryptocurrencies and Bitcoin itself. This could cause its price to rise or fall dramatically. However, investors can only speculate on its future value since it doesn't have intrinsic worth.
Another risk that Bitcoin faces is the possibility of attacks by hackers. Since it was launched in January 2009, a large volume of cryptocurrency has been stolen due to these types of thefts. Since Bitcoin's operations are carried out through mining, they have a significant impact on the environment. This process consumes a huge amount of energy to carry out mining tasks.
If you're considering investing in cryptocurrencies as part of your ESG strategy, be aware of the potential environmental impacts of Bitcoin mining.
The Future of Bitcoin
The increasing number of people who are comfortable with owning and trading cryptocurrencies should eventually help boost the market cap of Bitcoin. According to Ron Levy, the CEO of The Crypto Company, more and more financial industry professionals are starting to embrace Bitcoin as an asset in their portfolios.
As a store of value, Bitcoin has been gaining increasing recognition as a potential asset that can hold its value in the future. One of the main issues with Bitcoin's network is its energy consumption. Due to the increasing number of users and transactions, the network is experiencing congestion. An alternative consensus mechanism known as the Proof of Stake is expected to be released in 2022.
If Bitcoin decides to switch to the Proof of Stake consensus mechanism, it could help improve the network's efficiency and reduce its energy consumption. This could also encourage more people to participate in its network.
In March 2022, President Joe Biden issued an executive order aimed at providing more guidance and transparency regarding the US' regulations regarding Bitcoin and digital assets. Supporters of Bitcoin believe this move will help the public understand the utility of cryptocurrencies.
Brian Goldblatt, a financial analyst at Prager Metis, says the executive order is a significant step in the right direction for cryptocurrencies. It will help legitimize the industry and increase the long-term outlook for Bitcoin.
Secure And Convenient Cryptocurrency Trading With Crystal Ball Markets
Before you start trading with real capital, it’s paramount for traders to find a reliable platform on which to trade cryptocurrency, and that’s where Crystal Ball Markets comes in. Our platform provides a multitude of analysis tools as well as historical data that helps crypto traders make smart investments. Apart from cryptocurrency options, the platform allows traders to diversify their investments by placing trades on a wide range of instruments.
If you’re looking to diversify your investment and get all the tools you need to start trading shares, register today and get the best online share trading platform, designed especially to help beginners understand market trends and make safe trades. Start trading currencies, stocks, energy, indices, and more today.