Buying Bitcoin as a Long-Term Investment
If you’re looking to invest in bitcoin and are an average person with little trading experience, treating it as a long-term investment is the most reasonable approach you can adopt. It is possible to make money on the short-term price drops and swings of bitcoin. But if you gamble your rent money on short-term trading, you will only end up broke and broken.
Investing in Bitcoin is Risky
The problem with bitcoin is that most investors treat it as a speculative asset. Only interested in its price swings, such investors fail to see the potential a decentralized and censorship-resistant worldwide computer network carries.
By jumping on board whenever they feel that the bitcoin price may go up and quickly selling off their coins when it dives, they contribute to the extreme volatility of the asset.
Volatility makes bitcoin a risky investment. If you are looking for a safe way to invest your money that guarantees returns, bitcoin is not for you. If you’re looking to speculate on bitcoin but lack the trading skills, you should stay away from it. Millions fail to heed this straightforward advice and get burned on every price cycle, ending up disappointed with the asset.
As an asset that has thus far failed to progress past its price-discovery period, bitcoin would be volatile even without the speculation aspect. Many factors impact its price, from regulatory development to celebrity tweets. It is a wild, uncontrolled asset with full exposure to the caprices of a mostly unregulated, naturally free, and wild market.
The simplicity of the All or Nothing Approach
For the simple investor, perceiving bitcoin as an all-or-nothing proposition is the best approach. The technology, the adoption of which currently outpaces that of the internet at the same stage of its existence, will either become widespread or may falter.
If global adoption happens, coins will be worth millions of dollars each. If the technology fails to catch on, it doesn’t matter how much a bitcoin is worth. This mentality allows investors to weather the insane price swings and hold on to the asset for the long term.
Short-term crypto investments are not better than gambling and if you engage in this activity, you should be aware of its consequences. Leveraged financial instruments that allow people to wager on cryptocurrency price swings are even worse as they amplify the exposure of the most vulnerable investors.
Why Bitcoin May Be a Good Long-term Investment
Bitcoin may be a good long-term investment if it fulfills its potential. It may also end up being a valuable collectible if it completely misses the mark and – as unlikely as that is – fails on every account.
Bitcoin could, however, succeed, and it is a good long-term investment opportunity for several reasons.
Bitcoin Retains its Value Well
Despite its volatility, over the long run, bitcoin tends to retain its value and even appreciate. The algorithm only allows the existence of 21 million bitcoin. Of this supply, people have irrevocably lost several million already. Due to its limited supply, bitcoin may be deflationary, naturally appreciating against all inflationary fiat currencies.
The radical price dips that scare many new investors are irrelevant over the long term.
Bitcoin May Be a Hedge against Inflation
Many investors see bitcoin as a hedge against inflation, due to the tendency of the digital asset to retain its value over time. There are many holes in that narrative, however. Some experts believe that rather than acting as an inflation hedge, bitcoin is a risk asset. The truth is somewhere in the middle.
In the short-term, bitcoin certainly trades as a risk asset. Its violent up and downward swings reward risk-takers and some speculators. In the long run, however, it may be an inflation hedge as it tends to bounce back and regain its value. Due to its limited supply, it is immune to the inflationary dynamics that inevitably decimate the value of fiat currencies.
To become an indisputable hedge asset, bitcoin must break its correlation with the S&P500 and Nasdaq. If it plummets every time stocks sell off, it is hardly the safe-haven asset it needs to be to act as a reliable short-term store of value.
Bitcoin as a Safe-haven Asset
Gold has been a crisis commodity for a long time. Unfortunately, physical possession of gold is cumbersome, and for people living in conflict zones, it is hardly an option to go through checkpoints carrying pocketfuls of gold jewelry or bars.
Bitcoin grants people absolute ownership of value in the sense that no one can steal or rob them of their bitcoin. By memorizing a hardware wallet seed phrase and then destroying the wallet, one can theoretically carry around millions of dollars worth of value in his or her brain.
Note, however, that relying solely on your memory to safely store your bitcoin is hardly an ideal approach.
Although theoretically, it can act as a safe-haven asset, bitcoin is yet to prove its utility in this respect. Its price movements mirror those of major stock indexes and not those of gold.
Fiat Currencies Keep Losing Value
One factor in bitcoin’s favor is the inflationary nature of fiat currencies like the USD and EUR. Regardless of how the economy evolves, the money we have keeps losing value. Central banks around the world have embraced money printing, releasing unprecedented amounts of debased currency into the system at the expense of those who now hold dollars, Euros, or other money.
With its supply limited to 21 million coins, bitcoin is deflationary. The longer you hold it, the more it should be worth against fiat currencies.
The USD may suffer additional depreciative effects on top of the inflationary pressures. For decades, countries have relied on the greenback as their reserve currency. More and more countries defy this establishment, however, ditching the USD as their reserve currency.
Why Bitcoin May Not be a Good Long-term Investment
Many long-term investors want investment vehicles that are safe, and guarantee some returns over time. As much as we like to think that bitcoin has nowhere to go but up in the long run, it can’t guarantee anything to anyone.
A fire-and-forget approach may suit some retail investors, but many don’t like this proposition. They need some sort of certainty that the money they invest will yield some returns. And bitcoin can’t provide any certainty.
It may explode someday, perhaps becoming the best investment the world has ever seen. Or it may not.
The Best Long-term Investment in the Cryptosphere
Bitcoin is the ultimate blue-chip cryptocurrency. More companies and service providers accept it for payments than any of the altcoins. It is the only truly decentralized digital asset, and its second layer extensions, like the Lightning Network, lend it additional utility.
Bitcoin is the most popular asset among long-term cryptocurrency investors. And the fact that many people buy it and hold on to their coins for a long time makes bitcoin even scarcer than it already is.
Several well-known businesses hold bitcoin on their balance sheets, and many asset managers have made the king crypto available to their investors.
Bitcoin is risky investment, but those who see value in it and are patient enough to hold it through several boom and bust cycles may profit from it immensely.