Last week, the U.S. Securities and Exchange Commission (SEC) approved Bitcoin ETFs into the crypto markets. Bitcoin ETFs are now listed and can be traded in mainstream portfolios. This approval has sparked the interest of some investors, wondering if it should be added to their investment accounts. I have always believed that you should not invest in something unless you understand it. We are not experts, but we will try to explain it.
What is Bitcoin?
Bitcoin is a form of virtual currency, designed to act as money and a form of payment outside the control of any one person, group, or entity, thus removing the need for third-party involvement such as banks.
Bitcoin was launched in 2009 and is ranked as the world’s latest cryptocurrency by market capitalization. It is created, distributed, traded, and stored using a decentralized ledger system known as a blockchain. A blockchain is a shared database that stores data. The data within the blockchain is secured by encryption methods.
When Bitcoin is created, distributed, traded, and stored, it is tracked by the blockchain. Every transaction is recorded, logged, and verified by validators who are called miners within the network. When a transaction is verified by the miner(s) a new block is opened which creates a Bitcoin. The Bitcoin is rewarded or given to the miner(s) who verified the data within the block, which then allows them to use it, hold it, or sell it.
Investing in Bitcoin
After Bitcoin was launched in 2009, it slowly grew in value, reaching its highest price of $1,000 in 2017. Once people started noticing its steady climb in value, they started to invest in it. This boosted its price, reaching an all-time high of $47,454 in 2022. Unfortunately, this high didn’t last long; in March 2022 Bitcoin plummeted to $15,731. Bitcoin has since recovered, currently trading at $40,872 (at the time of writing) making Bitcoin a very volatile and risky investment.
Initially, Bitcoin was designed and released as a payment method between a small group of individuals. However, since its growth in popularity and competition between other blockchains and cryptocurrencies, the uses for Bitcoin have increased significantly. This has persuaded many people to invest in it; with the hopes of it becoming a form of real currency for the public.
The Risk
Just like with any investment, there is risk. The majority of people who are investing in Bitcoin are doing so because of its success in the last few years, not because of its initial purpose – digital currency. Bitcoin is still very new to the markets, which is why many speculators are questioning whether Bitcoin will fully immerse itself into our everyday life passing as valid currency or if it will deteriorate in the years to come.
No one knows which direction Bitcoin will go in the next few days, weeks, months, or years. However, it could add diversification and the potential for higher returns to an investor’s portfolio. But it is not for everyone, it is very volatile, and considered high risk.
If you have any questions or would like to inquire about how to add some Bitcoin to your portfolio, please don’t hesitate to contact us.
Have a great weekend,
Tracey and Paige
Sources:
https://www.investopedia.com/terms/b/bitcoin.asp
Photo by André François McKenzie on Unsplash