Make no mistake about it – Bitcoin and other cryptocurrencies are changing the financial arena (See also: Understanding and Investing in the Blockchain). However, it’s still far too early in the day to say whether they will last the distance or not. That said, many people have benefitted from enormous returns on their investments. Take the story of the Norwegian student that invested $27 into Bitcoin as part of his degree thesis. He forgot about his account until 2013, reopened it, and had a nice surprise waiting for him. Hos Bitcoins were now worth almost $900,000.
When you hear about stories like these, it’s tempting to go for broke with Bitcoin investment. However, there are a few things you should know beforehand. We’re going to look at some f the pros and cons of Bitcoin investing and discover whether it is worth your time and money or not. Let’s get started.
The limits of Bitcoin
As an investor, you always want to play with fixed odds. And, while the number of Bitcoins available is always rising, there is a limit. Once there are 21 million Bitcoins in existence, the software and system will stop producing the cryptocurrency. Now, financial experts believe this won’t happen until around 2140, so it’s some time away. But, given the supply of Bitcoins is slowing – at a rate of half every four years – it’s a viable option for investors.
One of the risky aspects of the Bitcoin phenomenon is that its value varies wildly. Even over a single day, its price can skyrocket and then shrink several times. Of course, this can happen with any currency in its infancy – even the dollar experienced wide rises and falls in its early days. The trouble is, for investors, the fluctuations represent a lot of risk – and many will not go near it.
There are no regulations for Bitcoin at the moment, which has its pros and cons. One of the disadvantages is that when strange things happen, no one is liable. For example, the Mt. Gox Bitcoin exchange lost half a billion dollars worth of Bitcoin in recent years – and no one knows where it is. It’s also worth pointing out that regulators are beginning to keep a closer eye on developments. Both these issues mean that when it comes to investing, many experts will look elsewhere.
However, there is plenty on offer that will appeal to those investors who like a gamble. For many people, it’s an all-or-nothing bet. On the one hand, the currency could fail to take off, and you will lose everything. If it succeeds, though, it could be incredibly lucrative. It is conceivable that one day, every Bitcoin could be worth $100,000. There are a lot of smart people involved in giving Bitcoin the best chance of success, too, so it is a tempting offer.
Big corporations who have enjoyed many investment successes are also looking at Bitcoin. Goldman Sachs, for example, recently put $50 million into a small startup. The fledgling company intends to start using the Bitcoin network to create a global payment system. Customers will get paid by Bitcoin, but the value is instantly translated to their currency of choice. Of course, not all big investors in Bitcoin enjoy success. And, to a firm like Goldman Sachs, $50 million is just a drop in the ocean. But, with major players willing to take a risk, it’s not impossible they will be a success.
So: is it worth it?
When you look around for information on Bitcoin, there isn’t much to find. It is, by definition, a shady-looking operation. Its use in the underground network Silk Road – used by many criminals – was revealing, to say the least. It’s interesting that whenever the law closed Silk Road, the value of Bitcoin plummeted. With this in mind, it’s difficult to judge whether Bitcoin will ever take off outside of its slightly suspicious clientele. And, of course, there’s also the worry that Bitcoin won’t even survive as the dominant cryptocurrency.
But, make no mistake about it, things are changing. It’s not unusual for online sites to accept Bitcoin payments these days. More than 60,000 stores around the world allow their customers to pay with Bitcoin. Big names are trying to go deep into the cryptocurrency market. And, the fact that it could end up changing the entire world banking system is something of intrigue. As with all new frontiers – from the discovery of America to the Gold Rush – there are plenty of risks. But the rewards are all too tempting – and real – for the brave.