As Bitcoin and other cryptocurrencies become more popular there are more people investing in digital assets. You may be one of those who is thinking about building your own portfolio of cryptocurrency. Before you rush out and make you first Bitcoin purchase there are a few things you need to know about crypto. Here are 5 things to think about before you invest in Bitcoin.
1 – Bitcoin is a Volatile Asset
Bitcoin has evolved a great deal since it was first introduced in 2009. It has gone from a novelty that drew the interest of technology geeks to an asset class that rivals gold and stocks. Bitcoin can be traded today on many cryptocurrency exchanges, and some exchanges are even offering futures and options trading for crypto.
Cryptocurrency markets tend to be very volatile. Significant swings in the value of Bitcoin can happen on a daily basis. The currency may be valued at $10,000 today and $12,000 tomorrow, or it could dip to $8,000. There is no perfect way to predict the movement of the market. For this reason many people buy and hold Bitcoin in the hopes that its value will continue to rise. They are not concerned with daily shifts. They are concerned with the long-term picture.
In any case you need to be aware of the market movements so that you can act appropriately if Bitcoin should begin to take a massive drop in value. Follow the market news and monitor the price of Bitcoin on a daily basis.
2 – Bitcoin Must Be Stored Properly
Digital currency is not like cash. It cannot be stored in a bank because it has no physical existence. Bitcoin and all other cryptocurrencies are stored in wallets which are encrypted. Each wallet has keys for sending and receiving Bitcoin. A key is a string of letters and numbers. To manage your wallet you must retain access to these keys.
There are different types of wallets available to store your crypto. You can opt for a desktop wallet which is stored on your computer. There are also web-based wallets which are kept in the Cloud. Paper wallets are available, and so are hardware wallets that you can carry on your person. Each type of wallet has its advantages and disadvantages.
If you don’t plan on using your Bitcoin to make purchases, a paper wallet or web-based wallet might work for you. If you are someone who regularly sends and receives Bitcoin then you might need a hardware wallet. Research the various types before you make your first Bitcoin purchase.
3 – There is a Finite Supply of Bitcoin
Bitcoin is not like cash. Fiat currencies can be printed by governments when there is a need. With Bitcoin there is a fixed number of tokens that can be mined, or created. The controlled supply of Bitcoin is capped at 21 million tokens. This finite supply is what helps to preserve Bitcoin’s value. There is a similar controlled supply for most cryptocurrencies.
To manage this controlled supply Bitcoin periodically reduces the reward that miners receive for adding blocks to the blockchain. This process is called halving, and the next one is scheduled to occur in 2020. Sometimes the value of Bitcoin can go up during the period leading up to a halving, but it usually levels out a few months after the halving is complete.
When you buy Bitcoin you own something that has a limited, fixed supply. Once the maximum number of coins has been created, no new Bitcoins can be mined. This is a main reason why speculators believe that the value of Bitcoin will always increase over time.
4 – Spending Bitcoin Can Be a Challenge
If you are investing in Bitcoin or other tokens for the purpose of exchanging them for goods and services, you should know that spending Bitcoin can still be a challenge. The problem is that Bitcoin is not on a par with other payment methods when it comes to the speed of processing transactions. There are also costs that a merchant would incur to set up their business to take Bitcoin.
The good news is that this is changing. More retailers are accepting crypto, and measures are being taken to address the scalability of Bitcoin. Advances like the Lightning Network are making strides in cutting down the time required to process transactions. In a few years the odds are good that Bitcoin will be accepted by almost every major retailer.
In the meantime you might want to explore a cryptocurrency debit card. There are many of these cards available. The cards allow you to access your Bitcoin and make withdrawals in cash from an ATM. You can also use the cards like a regular debit card at merchants that accept Visa or MasterCard.
5 – Bitcoin is Still Number One in Cryptocurrency
You have probably noticed that there are many cryptocurrencies available today. Litecoin, Ethereum, Ripple, and Stellar are just a few. It seems that new digital tokens appear almost overnight. Some of them go on to become viable investments while others never get off the ground.
Use caution when you are thinking about investing in altcoins, or alternatives to Bitcoin. When it comes to cryptocurrency Bitcoin is still the number one token by far in terms of value. Nothing else really comes close. In time that may change, but as of today Bitcoin will probably be your best choice for an investment.
The future of Bitcoin and cryptocurrency is bright. More companies are exploring the use of blockchains, and Internet giants like Facebook are planning to launch their own tokens. You still have a chance to become involved with cryptocurrency in an early stage.