Understanding Crypto: Is Bitcoin A Good Investment?
There’s no question that Bitcoin is the king of Cryptocurrency. While there are others that are incredibly interesting from an investment standpoint, especially for those with some knowledge of blockchain and the crypto world. However, Bitcoin still remains a bit of a mystery for many serious investors.
Is Bitcoin still a good investment in today’s market, or has the heyday of getting in on it already passed? Are the concerns about “lack of backing” legitimate or alarmist?
While Bitcoin can be considered a very risky and speculative investment (because it is both) that doesn’t mean it isn’t a good investment for the right portfolio.
Bitcoin in 2021 and Beyond
The short answer to whether or not Bitcoin is a good investment or not can be boiled down to “Probably, but…”
While many people can’t imagine Bitcoin getting even more valuable, the same was said back in 2008. And 2010. And 2012. And 2015. And even 2019.
At that point, you’re well past the mark where you can start claiming to see a trend.
Many believe that Bitcoin may actually be a very long way from reaching its peak value. Especially because of how mainstream it has gone. Being accepted internationally for payments, as well as being seen accepted by major investment houses across the world means that although speculative, Bitcoin also has a sort of “faith support” that most cryptos can’t claim.
Risk Vs. Reward
Yes, a stock can go bust and go to zero (Enron, Bear Stearns, Washington Mutual), but there is a company that has some degree of value. There are also almost always warning signs before something like this would happen.
With Bitcoin or any cryptocurrency, there isn’t that. It is speculative and there is no real-world backing for the currency.
However, even the red hot stock market right now hasn’t held a candle to how much Bitcoin has been shooting up in value. Even if you bought two years ago when most analysts had Bitcoin marked as “highly overvalued” you have made over 600% on your investment.
Could this value go away? Certainly. A large part of that value was driven up by Tesla investing over a billion. If that support vanishes or jumps to another crypto that could cause some major shocks to the value/pricing.
But if you’re willing to ride out the risk – the potential reward is clear, and it is crushing even the longest stock market bull run in modern history.
What’s the Ceiling for Bitcoin?
That’s the thing. There isn’t one. The value is driven by what its value is perceived to be. The more widely accepted it is as a rare or valuable commodity, the more valuable it can continue to be.
While the speculative nature should be alarming to conservative investors, if you have good risk tolerance then looking at a small portion (10 or 20% tops) of your portfolio as going to Bitcoin isn’t the worst move. It provides huge potential upside, but you should only invest if you can afford to lose that money.
What About When Bitcoin Runs Out?
This is actually a really interesting question. Will the value explode? Will it suddenly plummet? No one can say with 100% certainty, but here’s the thing: it’s irrelevant for investment purposes. Even with ramped up mining because of the way it’s set up the last Bitcoin won’t be mined for nearly a century.
Don’t let this question affect your investing decisions.
Measure your risk, the upside vs. downside, and if it’s right take a shot. If the thought makes you nervous, then pass and go with something you’re more comfortable with investing in.