More and more people are becoming interested in investing in Bitcoin. So much so, in fact, that it is now possible to open a digital IRA, which allows you to invest in cryptocurrencies as well as other assets and build your retirement plan. However, it seems that not a day goes by without some “expert” claiming that Bitcoin is either the next best thing in the world, or nothing but a fad that will soon fizzle out. That doesn’t give many people confidence when it comes to making investments. So what do you need to know before investing in Bitcoin?
Is Investing in Bitcoin a Good Idea?
Earlier this year, Bitcoin finally crossed the $10,000 threshold. The speed at which it achieved this is tremendous, since it was worth just $1,000 less than one year ago. However, this doesn’t necessarily talk about the strength of Bitcoin. Rather, it shows that the currency is incredibly volatile. And with anything volatile, there is the potential to make a huge profit, but an equally large potential to lose it all.
The Concept of Scarcity
All economies work on the concept of supply and demand. Simply put, when there is lots of supply, demand starts to drop. But when supply starts to decrease, demand goes up rapidly. And this is where Bitcoin comes in. There is a finite amount of Bitcoin available and everybody knows exactly how much there is and how much is still remaining. Never will there be more than 21 million Bitcoin. That means that it is physically impossible for everybody in the world to ever own at least one Bitcoin at the same time. In other words, there is a scarcity, which means demand goes up.
Now, on the other hand, that doesn’t explain why Bitcoin is suddenly so popular. It was first developed in 2009 and that finite figure of 21 million was set in stone then. What is making Bitcoin so popular now is more down to fear of instability than anything else. Consider, for instance, Venezuela. Inflation in that country may reach 25000%, meaning their currency is all but worthless. Bitcoin, and other cryptocurrencies, aren’t controlled by governments or central banks. They are controlled by regular individuals because they are decentralized. Add to this the scarcity, and it means that a 4000% inflation or deflation is simply impossible.
So should you invest in Bitcoin? From an economic perspective, now is the time to strike. The iron is hot and the value of cryptocurrencies continues to rise. How long that will continue, if at all, is anybody’s guess. But there are always countries with economic instability and one of the key principles of cryptocurrencies is that they should be available to the globe. Hence, it is likely that there will always be an investor somewhere who is willing to buy Bitcoin, keeping the value up.
Should you dedicate 100% of your portfolio to cryptos? Absolutely not! But then you shouldn’t dedicate 100% of your portfolio to any one thing.