Is investing in Bitcoin safe?
It’s important to remember that like any other investment, Bitcoin has risks. For example, BTC is highly volatile and has seen dramatic rises and falls in price throughout its history.
Still, as long as you are willing to tolerate the risk of a possible downturn, BTC is generally safe!
While it was difficult to safely buy and store Bitcoin early in its history, investing in BTC is now safer than ever. Exchanges like Coinbase and Kraken are trusted by millions of investors and institutions around the world. Meanwhile, hardware wallets like Ledger use state-of-the-art security technology to prevent hacks.
In 2024, a Bitcoin ETF was approved for the first time — showing how the asset is now being accepted by traditional financial institutions!
Why invest in Bitcoin?
Bitcoin is a digital currency that uses the blockchain to ensure security and verify transactions. Bitcoin is famously capped at 21 million units — which means that it can serve as a hedge against inflation!
In recent years, the purchasing power of the US dollar and other fiat currencies has decreased due to inflation. Some commentators say that inflation is equivalent to the government ‘stealing’ from those who hold their wealth in USD dollars.
Many Bitcoin investors see investing in a BTC as a way to preserve their wealth and opt-out of the traditional financial system.
What’s been happening with Bitcoin?
Bitcoin has seen significant volatility since its creation in 2009 — with dramatic price swings throughout its history. However, investors who’ve held BTC for the long-term have seen huge rewards!
As of 2024, BTC is in a bull market — which means that its price has increased by more than 20% in the past 12 months!
Check out our Bitcoin Profit Calculator to see how much money you would’ve made if you invested in BTC a year ago!
The pros and cons of Bitcoin
Let’s walk through some of the pros and cons of Bitcoin.
Pros:
- Decentralization: No single entity, bank, or government controls Bitcoin.
- Limited Supply: With a capped supply of 21 million coins, Bitcoin is designed to be inflation-resistant.
- Liquidity: Bitcoin can be quickly and easily converted into cash through exchanges like Coinbase.
- Accessibility: Bitcoin allows anyone with an internet connection to participate in the ecosystem.
- History of High Returns: BTC has rewarded early investors with large returns.
Cons:
- Volatility: Bitcoin's price can fluctuate wildly, which means that it may not be a good choice for investors who cannot handle volatility.
- Regulatory Uncertainty: It’s uncertain how governments will regulate Bitcoin and other cryptocurrencies in the future.
- Security Risks: While the Bitcoin network itself is secure, investors must take steps to protect their wallets from hacks.
- Limited Acceptance: Not all merchants and services accept Bitcoin, limiting its use as a currency.
- Environmental Concerns: Bitcoin mining consumes substantial energy, raising environmental concerns.
If I invest $20 in BTC today, how much will it be worth?
You can buy a fractional piece of BTC — which means that you can invest as little as $1.
It’s important to remember that investing a small amount of money in BTC means that your returns will likely be relatively small. For example, if you invest $20 in BTC and the price triples, you will have $60 worth of BTC. However, someone who invests $2,000 will have $6,000 of BTC.
It’s important to keep in mind your own unique financial situation when you decide how much BTC to buy. You should never invest more than you can afford to lose.
What’s the most secure way to buy Bitcoin?
The best way to purchase Bitcoin is to use a trusted exchange like Coinbase or Kraken.
Creating an account with these exchanges typically takes a few minutes (though it may take a few days to verify your identity).
These exchanges offer various features for security — such as two-factor authentication (2FA) and insurance for your cryptocurrency holdings.
What’s the most secure way to hold Bitcoin?
Hardware wallets like Ledger are the safest way to store your Bitcoin.
Hardware wallets are physical devices that store your private keys offline, making them less vulnerable to hacks. While hardware wallets do cost money, the investment is well-worth it if you’re planning to invest in BTC for the long-term.
What do professional investors believe about Bitcoin?
To better understand the pros and cons of Bitcoin, let’s take a look at what prominent critics and proponents of Bitcoin believe based on their quotes. Here, we’ll focus on Bitcoin critic Warren Buffett and Bitcoin proponent Peter Thiel.
Warren Buffett on Bitcoin: Warren Buffett has been a vocal critic of Bitcoin, describing it as "rat poison squared." Buffett believes Bitcoin lacks intrinsic value and unlike investments like real estate and farmland, Bitcoin "doesn’t produce anything".
Peter Thiel on Bitcoin: In contrast, Peter Thiel, co-founder of PayPal and a prominent venture capitalist, has expressed support for Bitcoin, seeing it as a hedge against the traditional financial system. He views Bitcoin as a “revolutionary youth movement” with the potential to disrupt banks and other centralized financial institutions. Part of the reason why Thiel has advocated for BTC is because of its fixed supply — in the past, Thiel has called the US dollar ‘as good as toilet paper’.
Why is Bitcoin so volatile?
Bitcoin's volatility can be attributed to several factors:
Supply and Demand: Because Bitcoin has a fixed supply, price can change rapidly based on how demand changes.
New Asset Class: As a relatively new asset, Bitcoin is more susceptible to speculative trading.
Media Influence: Because many traders see BTC as a speculative investment — positive/negative news and regulatory updates have an outsized influence on price.
Can I lose my money on a Bitcoin exchange?
In recent years, investors have lost millions of dollars worth of BTC and other crypto due to the collapse of exchanges like FTX, BlockFi, and Voyager.
Here are a few tips to keep your BTC and other cryptocurrencies safe:
Do your own research on exchanges: Before you get started with an exchange, check its security policies, third-party reviews, and research whether it has a trusted reputation in the cryptocurrency community.
Be suspicious of high interest rates: Be cautious of exchanges that offer high interest rates on cryptocurrency. In the past, exchanges have collapsed after offering high interest rates that they could no longer afford after sudden downturns in the crypto market.
Use a custodial wallet: When you store your cryptocurrency in a custodial wallet, you don’t risk losing your coins to an exchange hack or bankruptcy.
Is Bitcoin used by criminals?
In its early days, BTC was often used by criminals due to its pseudo-anonymous nature.
However, recent studies show that a very small percentage of Bitcoin’s transactions consist of illicit activity. Because all transactions on the blockchain are permanent and publicly visible, criminals often shy away from using Bitcoin.
In the past, the FBI has seized billions of dollars worth of Bitcoin from criminals.
Why should I invest in BTC instead of other cryptocurrencies?
While other cryptocurrencies may offer a higher return than Bitcoin, BTC is the biggest and most established cryptocurrency. As a result, investing in BTC is less risky than investing in newer cryptos.
BTC’s market capitalization is correlated with the overall crypto market — meaning that getting exposure to Bitcoin is a way to get exposure to the entire cryptocurrency ecosystem!
Conclusion
Before you invest in Bitcoin, it’s important to keep in mind potential pros and cons. As with any investment, it's essential to stay informed and consider your financial situation and risk tolerance before diving in.
