Why Should You Be Investing in Bitcoin?
It’s Not Just Geeks and Hackers – Bitcoin is THE Smart Investment Move
Is Investing in Bitcoin Smart?
Is Investing in Bitcoin Safe?
Can I Get Rich Investing in Bitcoin?
Bitcoin has been around for almost 11 years now and in that time has gone from an oddball nerd-money novelty to a major financial powerhouse.
Riding the Bitcoin wave has made a lot of people a lot of money, but greed for high returns has also cost a few more than they bargained for.
Why would you invest in Bitcoin? And is it even right for you and your risk-tolerance?
What are the Main Benefits of Bitcoin?
The main benefits of Bitcoin for an investor are the potential profits the cryptocurrency can generate over both the short and the long term. Add to this profits where if the Bitcoin is held correctly can be tax-free, aand you have a recipe for some exciting gains no matter what time period you’re looking at.
#1: Short Term
Thanks to it’s short-term volatility Bitcoin can experience significant gains in as little as few days, weeks or months.
For active investors this can make the asset a remarkably profitable trade, especially if you’re able to time the highs and lows so that you’re buying at bottoms and selling at tops.
Bitcoin famously rose from $1,000 to $20,000 in 2017 – a 1,900% rise in less than 12 months making a lot of Bitcoin investors very wealthy. $25,000 invested at the start of January would have been worth $500,000 in December – a type of gain that’s almost impossible in any other asset.
This was a very public rise with Bitcoin capturing global headlines – with headlines suggesting massive profits were easy and seemingly everyone and their aunt buying – there were a lot of new naïve investors who entered the market buoyed on by greed and a fear of missing out (FOMO).
These new investors helped BTC reach these record figures – before an inevitable market correction started by big investors taking profits, which saw the price drop, triggering panic selling, which in turn saw prices drop over 50% into 2018.
So it’s safe to say that Bitcoin is volatile.
But the incredible price rises in 2017 and drop in 2018 are just like many less well known price movements over Bitcoin’s history. Price movements that saw early investors get very rich very quickly.
Back in 2011 when Bitcoin first hit parity with the US Dollar, the asset rocketed from $1 to $31.91. Just $5,000 invested in February 2011 would have been worth $159,550 four months later.
These gains are near-impossible in any other asset class, but short-term gains like this are nothing compared to what came in the longer term…
That same $5,000 investment would now be worth fifty million US dollars.
#2: Long Term
That $50m perfectly sums up the long-term appeal of Bitcoin. Even small investments – which may rise and fall in the short term – have seen consistent long-term gains no matter what buy-in price.
At the time of writing one Bitcoin is approximately $10,000.
The following chart shows what $5,000 invested in January of each year would now be worth
|Bought||Bitcoin Price ($)||# BTC||Value Feb 2020 ($)|
Had you invested $5,000 in January 2020 it would already be worth $6,795 – yet had you made your move just one year earlier, you’d be looking at $12,968 today.
The true longer term beauty of Bitcoin is that $5000 invested only five years ago would currently be valued at $178,126. If you start looking at earlier time periods then these profits become almost ridiculous.
Now before going any further we need to get one thing straight – never has the phrase “past performance may not be indicative of future results” been more apt than when applying to Bitcoin.
See the results for January 2018? Had you invested $5,000 near the peak of the market your investment would still be down almost 22%. Now this is not a massive loss, especially when compared to once blue-chop stocks like Enron and Lehman Brothers – but you must always bear in mind that assets drop as well as rise.
This being said, both analysts and Bitcoin specialists are agreed the crypto marketplace has a long way to go.
As more and more big financial institutions, banks and even governments are accepting that Bitcoin has a role in our future financial system the potential for market growth, penetration and with that price rises is phenomenal.
- Anthony Pompliano at Morgan Creek Capital expects BTC to reach $100,000 by 2021’s end.
- BitMex CEO Arthur Hayes sees Bitcoin hitting $20,000 before the close of 2020.
- Adam Back, CEO of Blockstream believes anything from $20,000 to $100,000 as being possible within 2020.
- Marc P. Bernegger at CryptoFinance puts a range on Bitcoin in 2020 – a minimum of $22,000 and a maximim of $55,000.
- Finally over at PwC, Daniel Diemers the company’s head of blockchain says he can see Bitcoin reaching $100,000 in 2020.
These predictions are equivalent to an average of 500-750% growth from now until 2020/2021 and could see $5,000 invested today being worth $37,500 within this time-frame.
And when the price predictions are cast further afield we get valuations running from $100,000 to $500,000 all of which must be worth even the smallest of gambles for anyone with a healthy appetite for investment risk.
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Is Investing in Bitcoin Smart?
Bitcoin is the ultimate hindsight investment. Even 5 years ago our team thought Bitcoin had topped out. We knew that early investors had enjoyed 8000% returns seeing Bitcoin rise from $1 to $890 and 100% wished we’d been invested among them – “if only we’d known.”
The thought of buying in at that time, where massive profits had already been taken seemed a bad move and so many of us didn’t buy. Yes we wished we’d bought prior to then but at the time it was a case of “no thanks we’re good – we’re sticking with gold.”
When Bitcoin rose from $280 – $433 between January 2015 and January 2016 we felt a bit foolish but “knew” it had to drop soon.
Back then one of our marketing team, Alison, sold her home and decided she’d make a small wager on Bitcoin.
She bought $20,000 worth of Bitcoin in January 2016 and we definitely told her she was stupid. She was going to lose it all. It would be her loss. She couldn’t say we didn’t warn her.
By January the following year her $20,000 was worth $41,530.
Is investing in Bitcoin profitable? Although Alison cashed in a lot of her Bitcoin to buy gold in late 2017 she did so at a considerable profit and to this day she still has her original $20k in Bitcoin.
Thankfully she was able to read the growing bubble and sold the majority of her Bitcoin before the January 2018 drop. Had she kept it she’d have experienced a drop from a peak of $923,105 to $244,622 at 2018’s low point in November of that year. Yes she’d still have 10x’d her original investment which is an incredible result, but there’s no way a loss of almost $700,000 wouldn’t have smarted.
The next part, we DID see coming.
Alison – like the rest of our office – knew gold was massively undervalued in 2017 languishing in the $1200-1300 range and took a large chunk of her Bitcoin profits, reinvesting them into the yellow metal.
Since November 2017, her gold has risen 30%… meaning thanks to both gold and Bitcoin her original $20k is now worth $669,200 – and even today is $200,000 more than if she’d stayed in Bitcoin.
We were right on gold and wrong on Bitcoin, but like we say – Hindsight.
Mistakes Were Made
We’re the first to admit we misjudged Bitcoin 5 years ago and got it wrong again 4 years ago. Gold has always been our favorite investment – but the simple fact you’re on this page or that the page even exists is proof positive we don’t feel the same about Bitcoin anymore.
The bitcoin market has now matured and although there are still significant price swings and lots of volatility it’s a far bigger market with a lot of smart money invested.
We’re still 100% behind gold and precious metals as wealth protection and hedging assets but for potential gains there’s nothing that can come close to cryptocurrencies.
Added to this, the very real and robust future for cryptocurrencies as a whole – with governmental and institutional acceptance of blockchain as being the way forward for banking – the potential cannot be underestimated.
Is investing in Bitcoin profitable? Absolutely in can be – but not as profitable as combining Gold and Bitcoin, moving between the two assets as the markets rise and fall.
But is investing in Bitcoin smart?
It’s not just a smart investment but potentially genius.
Is Investing in Bitcoin Safe?
As we cover in this article the Bitcoin mechanism, the blockchain, wallets and the coins themselves are very safe thanks to their hard-wired built in trust.
It’s the elements outside of Bitcoin – the human elements – where Bitcoin’s safety risks lie.
Bitcoin itself cannot be hacked, cheated or edited because every single transaction is verified and recorded across the entire blockchain network. If you create a paper wallet and add bitcoin to it, there’s literally nothing that can take your Bitcoin away from you unless you give someone else your secret key.
The downside of this, is if you lose your key and the mechanism for re-issuing your key you also lose control of your wallet.
Only last week a Bitcoin holder in Ireland lost over $60m worth of Bitcoin because his key was lost. He’d written his down on a piece of paper and hidden it inside an old fishing rod for safe keeping. Unfortunately the broken old rod was thrown out without his knowledge and with it any possibility of accessing his wallet – ever again.
The Bitcoin still exist, but they’re permanently dormant and unable to be spent.
Even if you have your Bitcoins in one of the big online exchanges, these exchanges are not only capable of being hacked, but have experienced complete-loss thefts due to hacking or internal fraud. “Hot” wallets are held online and are only ever as safe as the mechanism protecting their passwords.
Theft and key loss are the two biggest threats to Bitcoin holders – bar none – and because of this, one of the safest ways of owning Bitcoin is inside of a Bitcoin IRA.
Not only do you make tax-advantaged purchases thanks to income tax rebates, but the wallet and key are safely and securely held in a Fort-Knox like depository and fully insured against loss. Even if somehow the vault is robbed and the thief makes off with your secret keys – or if your digital data is somehow lost, then you’ll get back the value of your Bitcoin in full thanks to these no-risk insurance policies.
Is investing in Bitcoin safe from theft and loss? Absolutely it can be.
But what about market losses?
As we know Bitcoin can go up and it can go down. Whilst year-on-year progress has seen excellent returns averaged out across the years, we do see big drops from time to time.
This is the downside of investing in a highly volatile asset and is one that can never be underestimated. You may make 500%, 1000% even 5000% profits – but you can also lose 50%, 60% or more. In fact as a wholly digital asset it can theoretically go to zero.
In this respect alone, Bitcoin could never be called safe.
For safety we would always suggest a time-tested physical asset such as gold.
Can I Get Rich Investing in Bitcoin?
Not only can you get rich investing in Bitcoin, but it’s commonplace. Anybody who has invested in Bitcoin to date will have made a profit.
Well anybody with the exception of buyers between December 2017 and February 2018 during Bitcoin’s infamous bubble. For everyone else Bitcoin is up.
If you know someone who has invested in Bitcoin outside of winter 2017/2018, then you’ll know someone who’s either made a great return or got properly rich through their Bitcoin investments.
For us it’s Alison in our marketing team with her $620k profit on $20k. And looking at our office’s combined circle of friends, we directly know 23 people who’ve made well over $1m in Bitcoin.
Again, with hindsight we’d have all invested – but even if you’d invested just $50k in January 2019 it would have been worth $129,690 as of today.
Now we absolutely cannot guarantee Bitcoin will always climb and always grow – but provided you keep your wits about you and move out of Bitcoin into something like Gold whenever the market gets overheated, there’s very little currently available that offers such a potential.
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Is Bitcoin Better than Cash?
Bitcoin is intended to be a cash replacement – and when we do inevitably move over to a blockchain-based currency or sufficient people use Bitcoin so that it overtakes the US Dollar as the world’s chief currency – then it will be just that.
It will be just like cash – only far more secure and much more efficient.
But until that time comes, Bitcoin will remain a speculatively traded asset. It’s value is based part in it’s potential as a cash-equivalent medium of exchange, but also based on market dynamics of supply and demand.
Because Bitcoin is currently priced in fiat currency such as USD, these factors combine along with global currency fluctuations to make Bitcoin a highly volatile asset.
You wouldn’t expect a $10 bill on your side dresser to be worth $20 at dinner and $3 at breakfast, so until Bitcoin stabilizes in it’s value against hard cash, then it cannot be a reliable cash alternative.
In all other respects it’s better than cash.
Bitcoin vs Inflation
As an investment, Bitcoin has risen more or less consistently since it was first released to the market in 2009. Yes the short-term prices have been very volatile, but overall 1 Bitcoin has averaged a $1,111 yearly growth from a $1 price in 2011 to $10,000 in 2020.
While $10 invested in Bitcoin January 2013 would be worth $7,163 today, the same $10 left on your sideboard would now be worth $8.93 – thanks to inflation running at a cumulative 10.7% over this time period.
This doesn’t just show Bitcoin’s rise in value and how the dollar in your pocket is diminishing daily – but also demonstrates why for Bitcoin to truly become a cash-alternative, we’ll need to rethink our system of currency.
Is Bitcoin Better than Shares?
Over the past 5-6 years, Bitcoin has outperformed every single asset class, from gold and silver to blue-chip stocks, government bonds and everything in between.
As Bitcoin crashed and burned in 2018, many anti-Bitcoin voices celebrated the losses taken by investors who’d been late to the party. It looked like the Bitcoin surge was well and truly over and for investors who’d left the buoyant stock market and sold company shares or other assets to jump onto Bitcoin, things couldn’t have looked worse.
And indeed for that small group of retail investors who’d joined Bitcoin at the very peak in December 2017, they are still in the red today, some by as much as 50%. Meanwhile the Dow Jones has risen from 24,834 to 28,090 now – a 13.1% increase.
(Out of interest, over the same time gold has risen 30% – a gain more than double the Dow)
But this small unfortunate window apart, Bitcoin has beaten all other non-crypto investments into the ground.
Shares become especially dangerous when you look at our financial system’s cyclical nature. On average, we see market crashes and recessions approximately every 10 years. Sometimes it’s 9, sometimes 11 – but almost like clockwork all markets behave cyclically.
The concern for stocks is we are now at 12 years since the last recession, so by a law of averages, we’re now overdue.
In fact only today as this page is being written, the Dow has dropped 437 points, or 1.57% – triggering alarm bells across the globe. Whether this heralds the beginnings of a new recession will only be told in the coming weeks and months, but one thing is for certain.
A recession is coming. And assets like gold and Bitcoin can only help you diversify and hedge against this risk.
Who is Investing in Bitcoin?
While Bitcoin was once the preserve of tech buffs, the fringes of alt society and some small degree of forward-thinking criminal elements, the past 5 years have seen a massive uptick in the number of buyers across all demographics:
By 2015 Bitcoin was already seeing ordinary retail investors dabbling in the now well-established cryptocurrency.
As 2016 turned to 2017 the dabblers were joined by more and more new investors – especially when Bitcoin’s gains began to feature heavily across all of mainstream media.
Initially suspicious of the crypto and generally negative in tone, the media soon changed it’s tune as Bitcoin’s price continued to rise and realizing that big-money stories sold newspapers and got clicks – the stories got ever more outrageous with teenagers buying fleets of Lamborghini and school kids becoming overnight multi-millionaires.
Even the most staunchly non-tech non-investor is eventually going to be overcome with a combination of greed and FOMO (Fear of Missing Out) given such a relentless promotion of the asset across all TV networks, digital and printed media.
Which is exactly what happened.
As 2017 progressed it seemed everyone and their uncle was investing in Bitcoin and seeing their money double in a matter of weeks. Suddenly people were maxing out their credit cards and selling up their homes to invest. New buyers were loading up on Bitcoin with no clue as to how markets operate, let alone what Bitcoin was – and the inherent risks in any obvious market bubble went unnoticed to the naive.
Then the price dropped and kept dropping. Panic selling saw the drop accelerate and soon all the weak-hand investors were out again having suffered in some cases catastrophic losses.
But for all the thousands of newly-minted Bitcoin haters – the smarter investors held onto their coins. Especially those who’d bought at or for less than the lowest price seen in the crash.
For every panic-buyer there’s always a savvy buyer. Thanks to the 2018 market correction longer-term holders were able to pick up new bitcoin for a fraction of their recent value.
This decision has born fruit, with prices now almost 3 times their 2018 low and higher than they were across 90% of 2017.
With some degree of market consensus analysts predict Bitcoin will reach at least $20,000 within 2020 and early 2021 – meaning even if a value investor were to buy today, they’d be buying at 50% of it’s peak and 50% lower than predictions place the coin within the next 12-18 months.
And as we mentioned earlier more bullish analysts predict an average 500-750% rise before 2021 is out!
Bitcoin Whales and Corporate Investors
Whilst most bitcoin whales were in at the start and certainly within the first five years of Bitcoin’s existence, there are a growing number of big-figure investors, both wealthy individuals and corporate / institutional buyers who continue to suck up spare Bitcoins in the market.
What are the Advantages of Bitcoin in an IRA?
In a word Tax. IRAs allow investors to buy qualified investments such as Bitcoin and other cryptocurrencies in a highly tax-advantaged way. We cover this in full in both our Bitcoin IRA and SDIRA sections
Bitcoin can only be held inside of a specific type of IRA – a Self Directed IRA (SDIRA). Some of these SDIRAs let investors buy tax-advantaged Bitcoin by either:
- Making tax deductions at the front end – in a Traditional IRA
- Paying no tax at the back end or distribution – in a Roth IRA
Either way a 35% rate tax payer can make an equivalent value tax deduction when they buy their Bitcoin or save 35% tax when they come to sell their Bitcoin.
Given the potential profits available from Bitcoin coupled with the IRS clamping down on Bitcoin tax avoidance – the possibility of paying no tax on profits, or being able to buy 35% more bitcoin thanks to tax deductions is an advantage few can ignore.
The other key benefit we touched on earlier is security. Bitcoin IRAs from companies like Coin IRA offer what is among the most secure way it’s possible to hold Bitcoin: inside an ultra-secure depository much like a bullion vault.
Guaranteed un-hackable and fully insured against loss, Bitcoin IRAs are the ultimate in security – being held in IRS approved vaults and safeguarded by IRS approved custodians or trustees, all risks of theft and wallet loss are removed.
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