Key Takeaways:
- Bitcoin is the oldest, most popular, and trusted cryptocurrency.
- Institutional investors consider it a hedge against inflation, like gold.
- High ROI, accessibility, and liquidity are some of the pros of investing in bitcoin
- Cons of bitcoin investments include high volatility, regulatory risks, and complexity.
- At Bitcoin Market Journal, our strategy is to buy and hold bitcoin over the long term, as no more than 10% of your overall investment portfolio.
Bitcoin is an asset that consistently defies traditional investor expectations. On a good day, the price of bitcoin can surge 20%, causing many investors to pile in, hoping to catch the wave. On a bad day, the price of bitcoin can drop 20%, causing many investors to flee for the exit.
Expert opinions are equally divided. While many traditional finance experts write it off as nothing more than a fad or speculative bubble, more organizations continue to pour billions into bitcoin each year, driving its market cap above a trillion dollars.
In this highly volatile landscape with so many contradictory opinions, it is easy for a newcomer to feel lost and confused. Trying to decide whether to invest your hard-earned money in bitcoin can seem daunting.
This guide is designed to help you make an informed decision, based on objective facts. We will break down the pros and cons of investing in bitcoin, and also share some anecdotes from ardent followers and fervent critics of bitcoin. The guide will also include an overview of our approach to investing in bitcoin (and crypto in general).
Understanding Bitcoin Investment
As the oldest and most recognized cryptocurrency, bitcoin is unique. As of this writing, its market capitalization is greater than the combined value of the top 20 cryptocurrencies below it.
When it was created in 2009, bitcoin had no value. In just 15 years, its value has appreciated by an eye-watering 55,000x (or more, depending on market volatility).
Over the last decade, bitcoin has slowly evolved into the digital equivalent of gold: a scarce asset with limited supply, excellent liquidity, durability, and resistance to inflation.
This, in turn, has made it an attractive asset for institutional investors and even sovereign governments seeking diversification and some level of exposure to the highly dynamic blockchain ecosystem.
Along with Ethereum, bitcoin is the only major cryptocurrency classified by the SEC as a digital asset (not a security). This gives investors some protection against an SEC lawsuit (though it’s unclear who they would sue, as there is no bitcoin “company”).
Due to its potential for steady long-term appreciation, investors do not typically buy bitcoin for short-term trading. This is an asset that works best with a buy-and-hold strategy, similar to blue-chip stocks like Microsoft, Coca-Cola, Lockheed Martin, and JP Morgan.
For more information see The Blockchain Believer’s Portfolio
Pros of Investing in Bitcoin
The potential for astronomical returns. In terms of ROI, bitcoin is easily one of the best-performing assets in recorded history. Traditional assets like blue-chip stocks and securities are no match for bitcoin in this regard.
Hedge against inflation. The supply of bitcoin is capped at 21 million. Limited supply makes it a deflationary asset whose value should keep appreciating over time. Many investors consider bitcoin an effective hedge against inflation and currency devaluation.
Diversification. Cryptocurrencies are a new asset class that has a low correlation with other more traditional assets like shares, treasury bonds, and other securities. As the most trusted and established cryptocurrency, bitcoin is usually seen as a good choice for investors seeking to diversify into the blockchain ecosystem.
Secure and transparent. Cryptocurrencies like bitcoin use a highly decentralized blockchain network that is nearly impossible to hack. All transactions are recorded on a publicly available ledger distributed across more than 18,000 nodes, reducing the risk of fraud, censorship, and manipulation.
Accessibility and liquidity. Anyone can buy and hold bitcoin via the internet. Dozens of online exchanges around the globe provide 24x7 access to bitcoin markets. It is the second most actively traded token on the market, only behind the Tether stablecoin.
Portability. In stark contrast to fiat currencies, bitcoin can be easily transferred to any part of the globe with an internet connection. It is not hindered by international borders or capital controls and does not require any financial intermediaries (who often charge transaction fees).
Technology of the future. The blockchain network used in bitcoin has immense potential to revolutionize everything from financial systems to healthcare, and logistics. Investing in bitcoin can be considered a bet on the broader adoption of innovative technologies in the future.
While these pros are compelling, it's important to consider the risks and volatility associated with bitcoin investment. As with any investment, thorough research and a clear understanding of one’s financial goals and risk tolerance are essential.
For more information see Our Approach to Crypto Investing
Cons of Investing in Bitcoin
High volatility. Bitcoin's USP is also its Achilles’ heel. While it can make massive gains during bull runs in the crypto markets, these are often followed by brutal bear runs. Crashes of more than 70% in a matter of weeks, or double digits in a single day, are not uncommon.
Regulatory risks. Although government agencies are more relaxed towards bitcoin, regulatory pressure on the wider cryptocurrency markets has increased drastically in recent years. Crackdowns and new regulations can significantly affect the market and hurt bitcoin prices and accessibility.
Technical complexity. Safe handling of bitcoin requires some familiarity with blockchain technology, exchanges, and wallets. Mistakes can be extremely costly as transactions on the blockchain are irreversible. Losing your private keys can permanently lock you out of access to your bitcoins.
Security risks. While the bitcoin network itself is almost immune to external attacks, individual accounts can still be hacked due to poor security practices. Cybercriminals can use techniques like phishing to steal your keys. Funds stored on online “hot wallets” at centralized crypto exchanges are often the target of hacks.
No consumer protection. When you invest in a bank, stock, or brokerage, your investments are at least partially covered by the FDIC or SIPC in the United States. Cryptocurrency investments do not have any such protections and you often have no recourse if you get scammed or defrauded.
Market manipulation. Around 11% of the total supply of bitcoin is held by “whales” (individuals or organizations who own wallets with at least 10,000 BTC). Since the network is transparent, any movement made by these accounts can have an impact on the price of bitcoin. Whales often exploit this to manipulate bitcoin prices to their advantage.
Environmental concerns. Bitcoin is a Proof of Work blockchain where network security is maintained via complex encryptions. It requires significant processing power and computing hardware (mining). The energy costs of maintaining this system are quite high and it can have a high carbon footprint, particularly in regions where miners use electricity generated through fossil fuels.
Uncertainty about long-term value. Opinions are strongly divided about the future of crypto in general. While many see it as the future of finance and other industries, detractors often view bitcoin and crypto as nothing more than a short-term speculative bubble driven by market sentiments, devoid of any concrete value or purpose.
Psychological stress. Extreme price swings and market volatility can induce significant stress among investors. Bull and bear runs in crypto can often last for weeks or months. Maintaining a disciplined long-term holding strategy can be hard during these times and it can take a toll on your mental health.
Scalability issues. Due to the nature of its blockchain architecture, the bitcoin network can only accommodate a limited number of transactions in a short period. During times of peak demand and network activity, users may experience transaction delays and are often forced to pay higher fees.
To fully understand risk in crypto read our Investor’s Guide to Memecoins
Expert Opinions
When asked whether a person should buy bitcoin, different experts offer different answers:
Carl Richards, whose essays and sketches appear in The New York Times under the moniker “Sketch Guy,” urges would-be bitcoin investors to ask if buying bitcoin would be investing or speculating on a commodity bubble.
JPMorgan Chase CEO Jamie Dimon called bitcoin a fraud, arguing that the investment is “worse than tulip bulbs.” However, he’s also said he will defend people’s right to buy, sell, and hold bitcoin.
Former Fortress hedge fund manager Michael Novogratz called altcoins “the biggest bubble of our lifetimes.”
Billionaire Mark Cuban equates investing in bitcoin to throwing a Hail Mary pass. Cuban argues that it is okay to invest some of your money in a high-stakes investment, but one should act as if that money is already gone.
Wall Street strategist Tom Lee has called bitcoin and bitcoin-driven vehicles, such as Grayscale’s Bitcoin Trust, “attractive buys.”
Personal finance expert Dave Ramsey is not a fan of crypto, because of factors like volatility, an unproven rate of return, and fraud.
Shark Tank investor Kevin O'Leary claims to be a bitcoin purist and miner who plans to hold the digital gold for the long term. He is not a fan of any bitcoin ETFs as they charge fees and prefers owning the tokens outright instead.
Larry Fink, CEO of BlackRock, was initially skeptical about bitcoin. However, after learning more about the cryptocurrency, he has become a firm believer, calling bitcoin “a legitimate financial instrument that allows you to have uncorrelated returns.”
Michael Saylor, Chairman and founder of software firm MicroStrategy has been aggressively buying bitcoin since 2020. Thanks to his unorthodox approach to corporate financing, called the “Trade of the Century” in crypto markets, the company’s asset value has doubled in a matter of years.
Far away from the rarefied heights of company CEOs and billionaires, ordinary investors are pouring millions into bitcoin, especially with the rise of bitcoin ETFs that simplify bitcoin investing.
A famous example is the Taihuttu family, led by Dutch author and entrepreneur Didi Taihuttu. Back in 2017, the family of five sold all their possessions and converted everything into bitcoin.
After traveling the world, the family finally settled in Portugal (a tax-free haven for crypto) and currently runs a bitcoin-focused bar.
Stories like these may seem at odds with the views of many experts. However, it is important to have a balanced view. The biggest gains in crypto were often made by early adopters who went all in on tokens like bitcoin when they were still available at low prices.
For instance, when the Taihuttus embraced crypto, the price of 1 bitcoin was around $900. If they had sunk a million in it in 2017, their assets would have been worth $8.1 billion at the peak of bitcoin in 2024.
Our Take
Here at Bitcoin Market Journal, we have consistently advocated for a simple crypto investing strategy across multiple boom-bust cycles.
Our approach to investing in crypto – the basis of our Blockchain Believers Portfolio – is based on a few simple principles:
- Diversification: we dedicate no more than 10% of our investing portfolio to crypto, as the market is incredibly volatile.
- Buy quality assets: we use bitcoin as the anchor of our crypto portfolio, supported by a few other high-quality tokens.
- Avoid trading: for optimal returns, we buy bitcoin at the same each month regardless of price.
- Hold long term: we keep doing this, month after month, for five years or more..
This approach, similar to value investing in the traditional stock market, has helped our Believers Portfolio outperform a traditional, non-crypto portfolio by more than 40% since 2018.
Investor Takeaway
Many investors are attracted to bitcoin by the allure of quick riches. While it is true that plenty of early adopters have become crypto millionaires or billionaires, their success was not primarily based on “buying low and selling high.”
Instead, buying at the same time each month, regardless of price, is the smart play. No one knows what the price will be in the future, so this gets us the average price over time. And rather than trying to time the market, we hold for the long term (5+ years).
As always, invest only what you can afford to lose. Happy investing!
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