Bitcoin As An Investment
As the world’s most recognizable digital currency, Bitcoin has had an interesting journey since going public in 2009. It was initially regarded by most as an ambitious technological concept with little hope of influencing actual financial markets.
Only a few years later in 2013, however, the currency achieved new legitimacy when its value skyrocketed to about $1,145 toward the end of that year.
That value was seen correctly as an unsustainable burst that occurred partially as a result of widespread realization that Bitcoin wasn’t going to simply fade into oblivion, and the digital currency quickly regressed to more reasonable levels.
Since 2013, conflicting notions have helped and hindered Bitcoin. On the one hand, it’s become associated somewhat with mysterious and even shadowy operations. The wholly digital nature of Bitcoin as a storage of value that is not backed by a central bank, government, or major financial institution of any kind essentially makes it a currency that can slip through the cracks. Without exception, a user’s Bitcoins can’t be frozen by an angry government, and the movement of Bitcoins in and out of a country can’t be prevented—which naturally invites the potential of some shady dealings.
Even as people have become aware of that potential, Bitcoin has simultaneously gained some legitimacy. It has been adopted by more and more merchants and services willing to treat it as ordinary currency. Now, Bitcoin can be used online for a wide array of legitimate transactions with household name brands, including PayPal, WordPress, and Overstock to name a few. Additionally, Bitcoin is accepted in a growing number of actual stores, where various methods are available to help businesses accept Bitcoin the same way they might take Apple Pay or something of the like.
Even after all of these changes and shifts in perception, however, the most recent development for Bitcoin in the United States might be the most interesting. No one has known quite what to make of the digital currency in terms of its actual utility in the everyday market, but recently Bitcoin was officially designated as a commodity by the CFTC (Commodity Futures Trading Commission). This gives it the same classification as gold, silver, and oil (among other popular commodities). It also enforces the idea that financial officials are looking at cryptocurrency as something to be invested in, rather than something to spend.
Now, that’s not to say spending doesn’t remain an option. The big difference between Bitcoin and other commodities is that it can be used to purchase goods and services directly. Put simply, if you own gold and you want to order a gift online with that wealth, you’ll first need to sell the gold for a dollar value, and then use that currency to purchase the gift. With Bitcoin, you can simply purchase the gift directly, provided the store or service you’re buying from has taken steps to accept cryptocurrency. And this means that users can pretty much continue to use Bitcoin as they please, either storing or spending it wherever possible as they desire.
But if Bitcoin is officially a commodity, it likely means that more users will begin looking toward it as a long-term value play as opposed to a useful everyday payment method. And that calls to mind a whole new set of questions and strategies regarding the cryptocurrency.
Is Volatility Worth The Stress?
For most of the last six years, Bitcoins have been subject to major fluctuations, which has led many investment experts to shrug cryptocurrency off as a potential investment asset. As mentioned, the price has in a matter of years jumped to over $1,100 back down to the $200 range, and there have been a lot of relatively unpredictable smaller shifts along the way. One could argue that these smaller shifts shouldn’t matter to someone who’s decided to approach Bitcoin as a long-term play, but a volatile investment can also be an unsettling one. There’s no universal answer to the question of whether or not the volatility is worth the stress, but perhaps the best way to address it is that you should know your own trading tendencies before getting involved with Bitcoin. If you’re an emotional investor or tend to react to sudden losses on impulse, any c
ryptocurrency could be troublesome to deal with. If you can stay disciplined and stick to an original plan, however, the volatility can be easier to overlook.
Is Long-Term Storage Reliable?
To deal with Bitcoin, one way or another you need to use a particular key that essentially opens your account and accesses any Bitcoin you may have. These keys are stored in what’s referred to as a digital “wallet.” While the public key helps you to accept Bitcoin in transactions, the private key allows you to spend Bitcoins. Thus, the latter is a major focus of security. Naturally, many people have concerns over whether their wallets might be vulnerable to hacking, and whether their private keys (and thus their Bitcoins) might be stolen. There are numerous wallet options out there that are known for various security and encryption measures, but again this is a question without a universal correct answer. How you feel about the security of a long-term Bitcoin investment depends on your own research and opinion on digital security measures.
Where Is Bitcoin Headed?
This is arguably the biggest question for anyone who does choose to look at Bitcoin as a commodity and a source of long-term investment. It’s also the hardest one to answer. The aforementioned volatility of Bitcoin’s price makes it a difficult commodity to project, whether for the next six months or the next six years. It is worth noting, however, that the trajectory of the cryptocurrency for the next year or so is expected by many analysts to continue upward. Some would argue that Bitcoin will continue to inflate in value given that it hasn’t reached its full market potential. As more shops and online stores begin to accept it, it will become more valuable. However, that same argument has been made in the past before crashes in value. Ultimately this is an investment that requires a great deal of research and attention.
This should continue to be a fascinating resource to track in the coming years. And to be clear, there are still many advocates of cryptocurrency that believe Bitcoin will overtake ordinary currency in the near future. But viewing it as a commodity instead of a currency, the above concerns should factor into potential investments.