What is Bitcoin and Should I Invest in it?

It’s probably fair to say that any person who has never heard of the term ‘Bitcoin’ must be living under a rock. In fact, it must be quite a sizable rock because every news station, radio show, and social media platform has spent the past few years feverishly gossiping about the latest in Cryptocurrency and the various investment opportunities that it presents. Bitcoin is probably the most well-known cryptocurrency so it makes sense that the name would become quite commonplace. There is, however, a big difference between hearing about something and actually understanding it. While many of us are vaguely familiar with the concept of crypto, there’s still a lot of information that gets brushed aside in the discourse and a lot of people are left wondering – What is Bitcoin really? How does it work? And is it a good investment? What is Bitcoin and Should I Invest in it?

Bitcoin is a type of cryptocurrency that has become more and more popular throughout the world. We can expand on this definition by calling it a digital, decentralised currency that utilises peer-to-peer (P2P) trading. 

That’s a lot of information to take in all at once so let’s try to break things down – 

  • Digital – Unlike coins and banknotes, digital currencies are mainly stored and dealt with online. In other words, they usually don’t have a physical form that you can interact with. 
  • Decentralised Currency – There isn’t a central bank that manages transfers when it comes to Bitcoin. In other words, the act of paying or receiving Bitcoin will normally only include you and the person you are dealing with. Put simply, there aren’t any third-parties like ABSA or Standard Bank to facilitate and oversee the trade. 
  • Peer-to-Peer (P2P) Trading – Without a bank or government to govern transactions, Bitcoin instead relies on a platform that connects the two parties and allows them to interact and trade directly with one another. This tends to lower regulation and transaction fees. 
What is Bitcoin and Should I Invest in it?
What is Bitcoin and Should I Invest in it?

Ok, now that we’ve got more details to work with, let’s try that definition again – 

Bitcoin is a computer/internet-based currency that tends to lack a physical form such as coinage or printed banknotes. It also lacks a central bank or government which would normally act as an intermediary to facilitate transactions between users. Instead, Bitcoin users can trade directly which lowers the level of third-party regulations and transaction fees. 

Is Bitcoin a Good Investment?

While experts remain divided on the exact future of Bitcoin, it’s generally agreed that the cryptocurrency is extremely volatile and subject to major shifts in value. But what does this mean for investors?

Well, it means that Bitcoin is the kind of investment that should only be pursued by risk-takers and daredevils. On one hand, Bitcoin has a history of meteoric rises in terms of its value – which is great for investors. However, the currency has also experienced sudden drops in value that are hard to predict and potentially ruinous. 

Simply put, Bitcoin can be hugely profitable as investments go, but it’s also very fickle and can easily leave you high and dry. It also has to be noted that various countries have banned Bitcoin and other cryptos in recent years which adds another level of unpredictability into the mix.

Is Bitcoin a Good Investment for 2022?

As mentioned, Bitcoin is extremely unpredictable and almost any semblance of ‘accurate forecasting’ will largely be guesswork. Going into 2022, Bitcoin has experienced its worst January in 4 years, losing around 20% of its value already, but many experts believe that the cryptocurrency will still be able to rebound and will end up in a much better position in the near future. 

What is Bitcoin and Should I Invest in it?
What is Bitcoin and Should I Invest in it?

How Much Should I Invest in Bitcoin as a Beginner?

The amount that you invest into Bitcoin will depend on multiple factors such as your personal finances and your overall portfolio. Generally speaking, the larger the amount that you invest, the more risky the whole enterprise will be. 

In other words, consider your position and work out what kind of a risk you are willing to take. 

A particularly ambitious investor may put up to 50% of his/her investment capital into Bitcoin while a more reserved person might want to settle for something between 5-10%

If you’re an inexperienced trader with mediocre or low funds, you may want to err on the side of caution and only commit a fraction of your investment capital due to the fact that Bitcoin trends can be notoriously difficult to predict and the price can drop precipitously in a matter of hours. 

Can you Lose Money from Bitcoin?

Yes, you can – easily. For all the stories you hear about people making huge amounts of cash from investing in crypto, there are a million others that involve people losing everything they have. 

A crypto investment can suddenly drop in value, it can be hacked, and it can even be banned in your country. All of these factors make it an extremely risky investment option that can leave you destitute if you’re not careful (and sometimes, even if you are). 

At the end of the day, if you invest in Bitcoin and the price drops before you realise what’s going on, it’s probably best to remember Warren Buffet’s famous quote – 

“The Stock Market is designed to transfer money from the active to the patient” 

If your investments crash, you haven’t actually lost any money until you sell them. If you are able to wait long enough for them to rebound, you can make back your money and maybe even earn a profit. 

What is the Smallest Amount of Bitcoin you can Buy?

The absolute smallest amount of Bitcoin you can purchase is known as a Satoshi and is equal to one 100 millionths of a Bitcoin.

What this means is that there is virtually no minimum limit to the amount of Bitcoin you can buy. You may not be able to buy an entire Bitcoin yourself, but you will be able to purchase a fraction of one which will allow you to be part of the investment. 

That said, there are charge fees present on many of the crypto exchange platforms which could make a particularly small investment not worthwhile. As a result, you may want to save up at least a couple hundred bucks before you get involved with Bitcoin, although, technically speaking, you don’t have to.  

In Conclusion – What is Bitcoin and Should I Invest in it?

Bitcoin is a decentralised, digital currency (or cryptocurrency) that facilitates trade via a peer-to-peer system. 

In simple terms, this means that Bitcoin is a type of currency that is found almost exclusively on computer systems and on the internet. Instead of having a central bank or central government to facilitate and monitor transactions, Bitcoin users enjoy the ability to trade directly with one another without having to include a third party. 

What is Bitcoin and Should I Invest in it?
What is Bitcoin and Should I Invest in it?

Bitcoin has become increasingly popular in recent years and has, overall, experienced some major gains. That said, it is known for its high volatility and unpredictable nature which makes it an extremely risky venture for even the most experienced investors. While a successful Bitcoin investment could generate a massive profit, it could just as easily drop in value and leave the investor with a major loss. 

It is recommended that inexperienced investors start small and purchase a fraction of 1 Bitcoin, to begin with. This can give you a feel for the nature of the market without you having to put too much on the line. It should be noted, however, that most Bitcoin exchange platforms usually include some service fees which may negate gains made by investments that are too small. As such, you may want to save up a decent amount of capital before making your investment without dedicating everything you have to the enterprise. 

At the time of writing, Bitcoin has experienced a particularly bad January performance in 2022, although many experts believe that the cryptocurrency will bounce back shortly. That said, certain countries have begun to ban Bitcoin and other cryptocurrencies which could affect future investment potentials should the practice continue. 

Disclaimer Finance101: All of our posts are for research purposes only. Finance 101 aims to assist its readers with useful information on the laws of our country that can guide you to make financial decisions that will enable you to become more financially independent in the future. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law & finance-related queries. Should you require specific legal/financial advice we advise you to get in touch with a qualified financial expert.

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