Bitcoin's value has increased four-fold since the spring -- and you thought the DOW stock market surge was big news. Is now the time to invest your money in Bitcoin? Here's why you should and why you shouldn't.
Bitcoin, of course, is a blockchain-based cryptocurrency. It's decentralized, anonymous and global.
Bitcoin made big headlines recently when its price on Bitcoin exchanges (which allow you to trade Bitcoin for U.S. dollars) surged to an all-time high above $4,000. That was about a four-fold increase from Bitcoin's value just a few months ago, and about seven times what Bitcoin was worth a year ago at this time.
That sure beats the DOW's 22,000-point recent record. If you had $1,000 dollars invested in stocks in April 2017, you'd now have something like $1,040. If you had $1,000 in Bitcoin back in April, however, it would be worth about $4,000 today.
That begs the question: Is now the time to invest in Bitcoin?
Reasons to Invest in Bitcoin
Here are three reasons why Bitcoin could be a great investment today:
- Instability is good for Bitcoin. In general, political unrest is not good for the stock market -- whose value is tied to established companies that depend on government services, stable financial institutions, a dependable workforce and so on. However, unrest is good for Bitcoin, which is resilient to political unrest because it is not a government-backed currency. There's evidence that recent unrest in Asia contributed to the Bitcoin price surge. If you think the future holds more instability for governments and traditional banks, you might find Bitcoin to be a compelling investment.
- It's easy. Investing in Bitcoin in the hope of taking advantage of future price increases is as simple as buying Bitcoin on an online exchange. Bitcoin transactions are subject to few regulatory oversights, which makes transactions fast and headache-free.
- It's low-cost. Bitcoin exchange fees are minimal -- usually on the order of 0.2% of the value of a transaction. By comparison, U.S. banks usually charge about 3% in fees when you use a credit card to buy something in foreign currency. If you want to speculate on currency, Bitcoin offers a cost-efficient way to do it.
Why Not to Invest in Bitcoin
On the other hand, here are a few reasons why you may wish to stay away from Bitcoin:
- Design issues. Despite Bitcoin's massive rise in popularity over the past several years, it is not immune to design problems. For example, starting late last year Bitcoin transaction speeds became very slow because of a scaling problem related to the way the Bitcoin blockchain works. (You can read the details here.) That issue did not end up creating the existential crisis for Bitcoin that some analysts predicted, and the problem has now more or less been solved via something called SegWit. Still, the Bitcoin scaling issue was a reminder that a new type of serious problem may creep up in the future that undoes Bitcoin.
- Competing cryptocurrencies. Bitcoin is by no means the only blockchain-based cryptocurrency out there. Another popular option is Ethereum, and there are plenty of others. Bitcoin leads in cryptocurrency market share today, probably because it was the first currency of its kind. But there's no guarantee that it will enjoy a market-leading position forever.
- More people are now paying attention to Bitcoin. Bitcoin's explosive growth in value over the past several months owes much to the fact that relatively few people owned Bitcoin before this summer. Now, a lot more people are paying attention to and investing in Bitcoin. The resolution of the Bitcoin scaling issue, the passing of worries about the deleterious effects of a Bitcoin fork and other developments have drawn more attention to the currency. What this means is that people who buy Bitcoin today are not getting in on the ground floor. Bitcoin's growth may continue for a long time to come, but it will certainly not be at the incredible rates of this summer.