by Devansh Lala
Bitcoin: Flipping the Coin
“No one can see a bubble. That’s what makes it a bubble.” — The Big Short
You must be familiar with the above quote if you’ve watched the Christian Bale movie The Big Short. Does that mean the Bitcoin is a bubble waiting to burst? Maybe. The truth is no one knows just yet. It’s difficult to assess whether something is a bubble by simply reading the news or following the market. So, let’s begin by understanding what is a Bitcoin?
Bitcoin is a decentralized, digital cryptocurrency. Confused? Let’s take an example. Let’s say that you are ordering headphones from Amazon via a seller and you want to know exactly where they’ve been before they were shipped to you. How do you find out? The answer is, you cannot. You can’t know the exact source of the product and you definitely cannot find out all the transactions related to those specific headphones.
Imagine if there was some sort of a digital ledger that could tell you all that and more? There is. Blockchain is a distributed digital ledger that stores all transactions related to a specific product or asset. But then what is a Bitcoin? Blockchain technology is what makes the Bitcoin possible.
Bitcoin is a peer to peer decentralized digital currency that is used to buy and sell products online. Decentralized means that the Bitcoin is not managed or issued by a company, government or financial institution. Bitcoin uses blockchain to store all transactions in a digital ledger which is then accessible to everyone globally using their computers. Now that you understand the basics, let’s understand why there is so much hype surrounding the Bitcoin.
1 Bitcoin costs $10,886.85 at the time of writing this article. Crazy, right? Bitcoin was worth $1 in April 2011 and now, 6 years down the line, it’s worth more than 10,000 times its original value. But, why is the price of the Bitcoin so high? Bitcoin’s growing demand and the awareness amongst the public about cryptocurrencies is causing the price of the Bitcoin to rise.
The price of the Bitcoin has been fluctuating a lot recently but some are betting that the price of the Bitcoin will rise to $40,000 by the end of 2018. People are even purchasing 5% of 1 Bitcoin so that they can sell it off and earn a profit when the price rises again. Various Bitcoin exchanges like Coinome, Zebpay, Unocoin and several others in India are currently allowing the public to purchase and sell Bitcoin also known as BTC. So, should you invest in Bitcoin? I hope I can help you answer that question by the end of this article.
Warren Buffett, one of the world’s wealthiest individuals and a person who is widely regarded as one of the best investors of his time had this to say about the Bitcoin: “It’s a mirage.”
Several others share his thoughts but does that mean that they are right? Well, they could be but it’s quite difficult to assess something like this and who knows what could happen in the future. Let’s take a look at some important points:
- Volatility: The price of the Bitcoin has been fluctuating a lot and although it has been termed as a currency, a 15% change in price in a single day is concerning. Although, you wouldn’t be thinking about this today if you had invested in Bitcoin a few years ago because you would have been a millionaire by now.
- Regulatory problems: Various countries such as China have imposed various restrictions to try and regulate Bitcoin and some countries have even banned the use of Bitcoin completely. Some believe that a few countries are working on their own cryptocurrency which means more regulations.
- Bubble: Bitcoin has drawn several comparisons to other bubbles in the past specially due to the fluctuations in price and the massive hype surrounding it.
- Legality: Although, buying or selling a Bitcoin is considered neither legal or illegal in India but the Reserve Bank of India has not declared it a currency yet.
- Fraud: Various individuals and companies are contacting the public to ask them to invest in Bitcoin through them but because Bitcoin investments are not regulated, if you are cheated by someone you can’t do much about it.
- Price: The golden rule of investment is to not invest an amount that you cannot afford to lose. If you want to invest in a Bitcoin then purchase a small portion of 1 BTC but do not purchase a large amount if you do not fully understand the market. Also, it would be a good idea to buy it when the price is lower than usual.
- Future: The market cap of the Bitcoin is much higher than any currency or stock. It is used throughout the world and is truly international.
- Wallet: After you purchase a Bitcoin online, they are stored in a virtual wallet but they are not entirely secure as the company that owns the wallet might get hacked. It’s important to remember that if you decide to buy bitcoin, do not store it with an online coin exchange platform. Instead, withdraw it and store it on a hardware or offline wallet so that it is secure.
- Supply: The number of Bitcoin in existence is not expected to exceed 21 million and because there is a finite number, the demand continues to grow.
- Futures trading: Anyone who has invested in stocks before understands the meaning of futures. Futures are contracts to buy or sell something after a set period of time at a predetermined price. Why am I mentioning this here? It’s because Bitcoin futures could be a reality, in fact US regulators have given the green signal to a few companies to allow Bitcoin futures trading.
Hopefully, some of these points helped you make a decision whether you should or should not currently invest in Bitcoin. Invest wisely and only invest in something you truly understand and believe in.