Investing in Bitcoin – Forex Academy

Let’s face it – at some point, we all thought that Bitcoin was going to collapse, but it didn’t. Since its inception in 2009, this cryptocurrency has shown tremendous resilience throughout its lifetime. Bitcoin has had meteoric rises and falls, having gone to the highs of $20,000 at some point and plunged as low as $5,000 within months. PayCoin, SpaceBit, and many other digital currencies have collapsed, and so, the idea of a cryptocurrency failing is not foreign after all. So what makes Bitcoin special? Does this pioneer crypto really have nine lives, or is it a matter of time before it vanishes into the nether world?

Critics say it shall end in tears; analysts say Bitcoin is here to stay. But let’s settle this debate by looking at the factors that give Bitcoin its resilience and evaluating whether they are solid enough to see it through crypto’s uncertainties.

This article presents Bitcoin’s history of fluctuations and reasons it is likely to survive the test of time.

The 2018 Bitcoin Crash

If there’s a time Bitcoin’s doomsayers were almost right in their predictions, it must have been 2018. After reaching almost $20,000 in December 2017, Bitcoin crashed to just $5,000 in December 2018. Cryptocurrencies were undergoing a rough time. During this period, a series of events led to widespread speculation about the fate of digital currencies.

In January 2018, it was rumored that South Korea was planning to ban cryptocurrencies in the country. As a direct consequence, Bitcoin lost 12 percent of its value.
Exactly 2 weeks later, Coincheck, then Japan’s largest crypto exchange, was hacked, and the cyberpunk made away with NEM equivalent to USD 530 million. Crypto enthusiasts across the globe momentarily lost trust in the security of digital currencies. Within a couple of days after this news broke, Bitcoin lost 50% of its value.
In March of the same year, someone stole Binance’s API keys and attempted to make fraudulent transfers. Binance detected the unusual activity and immediately suspended withdrawals. Panic had already spread.
In the same month, Facebook, Twitter, and Google banned all ICOs and token sales ads. This was the final piece of evidence doomsayers needed to prove their case.

For the remainder of the year, cryptocurrencies struggled to remain afloat. Some exchanges suspended trading, and some currencies collapsed. By November 2018, Bitcoin was exchanging at $5,500.

The Comeback

From the beginning of 2019, Bitcoin started to show signs of recovery. In fits and bursts, the currency rose in both trade volume and price. By June 2019, it had already reached $10,000. Between June 2019 and October 2020, the coin has fluctuated between $14,000 and $5,000. The comeback was not the strongest. However, it brought hope that Bitcoin was permanently poised for recovery and stabilization.

Why Bitcoin Is Likely to Survive the Test of Time

We have seen Bitcoin’s unpredictable fluctuations over the years. One question we need to answer is what makes it always recover even after an epic fail. Below are some of the reasons.

#1 – It solves real-world problems

This is arguably the main reason Bitcoin has survived for a decade. Bitcoin has real utility – you can use it to pay for goods and services, you can send it to another person, and you can invest in it as if it were an asset. While it was possible to achieve all this even before Bitcoin’s creation, its invention has made these transactions more versatile and cost-effective.

It has also opened new use cases that were previously impossible. For instance, activists are increasingly relying on Bitcoin to bypass government restrictions and receive donations. Of course, criminals and terrorists are also abusing the network to raise funds for nefarious activities, but that does not negate the fact that Bitcoin comes in handy when an unrestricted movement of funds is desirable.

#2 – It is (relatively) simple to understand and use

Compared to other cryptocurrencies, Bitcoin is relatively easy to understand and use. For comparison, Ethereum and Ripple, Bitcoin’s closest competitors, include complicated concepts (smart contracts and payment infrastructure, respectively) that confuse neophytes. Bitcoin is simply a currency. Even a person with modest internet skills can begin using it in a short time.

Bitcoin’s simplicity is on the user front – the mechanisms behind how it works remain as complex as those for other cryptocurrencies. Thus, none of the security, decentralization, and network stability benefits are compromised.

#3 – It is highly consistent with our past payment experiences

Bitcoin’s compatibility means you can easily plug it into traditional financial systems, and it blends seamlessly. It is accessible from mobile apps and other platforms that we are all already used to. Its acquisition and usage are also consistent with our past experiences. For instance, when checking out on an eCommerce site, you can pay for your goods by simply selecting Bitcoin, if it is listed. This is what you’d normally do with your credit card, PayPal, and so on.

So how does compatibility make Bitcoin resilient? Glad you asked. After a crash in volume, Bitcoin users can easily pick up where they left and continue using the currency like it never crashed. For emphasis, just imagine if, after abandoning its usage, you have to re-register, get a new wallet, find another exchange because the other one collapsed, and so on before you start using the currency again. It might not sound like much, but such complexities can impede the recovery of a cryptocurrency.

#4 – The pioneer advantage

Having entered the cryptocurrency market before any other currency, Bitcoin enjoys the pioneer advantage. It has been and will always be the trendsetter for cryptocurrencies. For instance, when Bitcoin activity slows down due to Bitcoin-specific adverse events, the entire crypto world is shaken. But Bitcoin does not necessarily suffer such instabilities when other networks go down.

The pioneer advantage creates the impression that Bitcoin can be trusted more than any other cryptocurrency. This makes it easier for Bitcoin to bounce back after a slump because crypto enthusiasts will likely continue to trust it even when cryptocurrencies are undergoing tumultuous times. It is a good thing anyway, as the lifeline of cryptocurrencies heavily relies on Bitcoin trends.

#5 – It is globally available

Bitcoin’s global presence contributes a great deal to its resilience. Each world region is characterized by a different economic and regulatory environment. So, when Bitcoin activity slows down in the Eurozone due to Brexit (if there’s such a cause-effect relationship), it could be pretty much business as usual in the rest of the world. Of course, changes in Bitcoin activity in certain regions have a high likelihood of impacting the rest of the globe. Even so, we must agree that having Bitcoin everywhere spreads and thus mitigates its risk of collapsing.

Final Thoughts

Bitcoin was created over a decade ago, and despite multiple scares that it was collapsing, the cryptocurrency still stands tall. It experienced its worst slump in December 2018, but its resurgence thereafter was a clear demonstration of its resilience. For the critics out there, Bitcoin’s high volatility is not necessarily a symptom of extinction – as it has been shown time and again. Lastly, although Bitcoin has seen countless rises and falls in its lifetime, one thing remains clear: after a fall, it shall rise.

Everyone has heard of folks that became millionaires from Bitcoin trading. Of course, trading Bitcoin is no guarantee that you’re going to wake up super rich. It takes smart calculation and healthy doses of patience to realize a tangible ROI.

Now, despite Bitcoin investing being a potentially lucrative venture, many people either still don’t have the faintest idea of what it is and how to go about it, or they think it’s something beyond their reach.

We hope to change that in this article. You’ll realize that getting started in Bitcoin is easier than you think.

So, we’ll break down the steps towards owning Bitcoin, right after we understand what Bitcoin is and some important caveats that you need to be aware of before hopping on the train.

What’s Bitcoin?

Bitcoin is the pioneer and the most successful of what’s known as cryptocurrencies. It has no physical presence – only digital, and it can be transferred electronically from one person to another, irrespective of their locations around the globe.

One of the most defining factors of Bitcoin is decentralization, which means that it’s not controlled or run by any single individual or entity. Rather, it’s maintained and secured by thousands of computers (known as nodes) all over the world. These computers are run by regular people like you and me, just like anyone can contribute to Wikipedia.

Bitcoin has a finite coin supply of 21 million, meaning once that supply is reached, normal coins will be released. The rate at which new coins are released is reduced by half at approximately every four years. The first halving was in 2012, the next in 2016, and the latest one happened in May 2020.

Despite having no physical proof of existence, Bitcoin has proven to be a very attractive financial instrument to investors. This is partly because unlike Fiat currency that is issued and controlled by governments, Bitcoin is self issuing, and its value as a currency is fully determined by people’s perception/acceptance. It’s the same thing when it comes to exchanging with other users. Users can transfer Bitcoin among themselves on a purely peer-to-peer (P2P) basis.

When Bitcoin was only starting out, anyone with a regular computer could ‘mine‘ and own the currency. But after the currency gained traction, the mining difficulty increased, rendering regular computers ineffective and necessitating the invention of more powerful computers known as application-specific integrated circuits (ASICs).

The problem is, ASICs cost a neat penny. Not just that, Bitcoin mining is now mostly done by entire mining ‘farms’ who more or less control the whole Bitcoin mining endeavor. With these odds stacked against them, the average aspiring Bitcoin investor has no choice but to purchase the currency.

What you Need to Know Before You Begin

Bitcoin is a purely internet-based currency. That, therefore, calls for entirely different approaches to security and storage. That means there are a few things that you need to know before you even dive into handling Bitcoin.

If you want to invest in Bitcoin, you’re going to need a crypto wallet, your ID credentials, a secure internet connection, and a method of payment. After assembling those things, you need to sign up at a cryptocurrency exchange of your choice. A method of payment can either be bank wire, debit card, or credit card. These are the requirements for purchasing Bitcoin from a cryptocurrency exchange, which is one of several ways of obtaining Bitcoin. Purchasing bitcoin from an exchange is one of the safest sources and because there’s virtually no chance of fraud.

Something else you should look out for is privacy and security. Privacy here means that, let it be only you that knows how much Bitcoin you own. Bragging about the size of your holdings is a bad idea. That’s because when you let the world know that you own Bitcoin, you could very well be attacked – and that means both digitally and physically.

How can you be attacked digitally? This could be a ransomware attack, a SIM swap attack, hacking, phishing attacks, and so on. As for physical attacks, there’s no shortage of stories of people that have been kidnapped and forced to give up their Bitcoin private key. A private key is like your bank account PIN. When you give up your private key, you’ve given up control and access to your funds.

Your private key should be guarded at all costs. You need to know that anytime you make a transaction, the person at the other end can see your account balance because it’s publicly available in your public address. It’s not a good idea for someone to know your account balance. So, if possible, keep any large holdings in different public addresses from the ones that you use for regular transactions.

And finally, be aware that all the history of transactions on the Bitcoin blockchain is transparent for everyone to see. What’s available, though, is public addresses. Your personal identifying information is not. Bitcoin transactions are private, but not anonymous. Indeed, Bitcoin transactions are best described as pseudonymous. Here’s the thing: anyone with enough resources and determination can, by using blockchain analysis, track down the real-life identity of the individual behind a transaction.

To counter this, various technologies have been invented to achieve complete anonymity for Bitcoin transactions. These include Bitcoin mixers.

Getting Started

Now that you know what you need to know, let’s go through the steps of acquiring Bitcoin.

#1. Get a Bitcoin Wallet

Unlike Fiat currency that’s stored in the bank, Bitcoin has to be stored in a cryptocurrency wallet. That will allow you to receive, send, and transfer Bitcoin. There are two main types of crypto wallets: software and hardware. Software wallets are based on the internet (including wallets provided by crypto exchanges), while hardware wallets are kept offline.

Software wallets are not ideal because they are subject to online vulnerabilities. Hardware wallets, which are devices typically resembling a flash drive, provide much more protection since they can’t be hacked. Some of the best hardware wallets in the market include Ledger Nano S, Ledger Nano X, Trezor Model One, Trezor Model T, and KeepKey.

#2. Connect a Bank Account

The next thing you need to do is connect your wallet to a bank account, debit, or credit card. Be aware that each of these methods has its own fees. If you use a bank account, expect to wait for at least four to five days for transactions to go through. With a bank account, you can buy and sell Bitcoin and get money deposited directly into your account. A bank account is better, security-wise, if you’re dealing with huge sums of money.

With credit and debit cards, you can buy Bitcoin almost instantly. However, most exchanges only allow you to buy crypto, and even then, there’s a limit to how much you can buy. You cannot sell Bitcoin or deposit money into your bank account if you’re using a debit or credit card.

#3. Sign up on a Bitcoin Exchange

A Bitcoin exchange is an online-based marketplace where you can buy, sell, or exchange Bitcoin. Just like there are many online markets for regular products – Amazon, eBay, and Alibaba, you’ll also find a variety of Bitcoin exchanges.

Different exchanges have different reputation, reliability, user experience, pay structure, exchange rates, and the available cryptocurrencies for trading. Before you stick with one, look around. Here are some of our recommendations.

Coinbase: This is US-based crypto and one of the ‘mainstream’ exchanges. It supports Bitcoin, Ethereum, Litecoin, Tezos, Ripple, EOS, cryptocurrencies.

Binance: At the time of writing, Binance is the world’s largest crypto exchange by volume. It also supports the majority of the major cryptocurrencies. Unlike many exchanges, Binance charges a 0.1% fee for all trades.

Square Cash: This is an app exchange by online payments company Square. The app is mighty convenient for users of the Square platform. The app aims to enable users to buy and sell Bitcoin as quickly and as frictionlessly as possible.

#4. Place an order

After signing up at your preferred exchange, you’re now set to purchase Bitcoin. Congratulations. Even if you can’t afford one Bitcoin, which goes for several thousand dollars, thou shalt not fret. You can still purchase Bitcoin in its small, infinitesimal divisions called Satoshis.

Other ways to Acquire or Invest in Bitcoin

We’d be remiss if we didn’t mention the other ways apart from exchanges through which you can acquire Bitcoin. Some of these include:

Bitcoin ATMs: These are kiosks that allow you to buy or sell Bitcoin. As of July 25, 2020, Coin ATM radar indicates that there are currently 8805 Bitcoin ATMs in 73 countries.

Peer-to-peer Bitcoin sites: These are platforms that allow you to purchase Bitcoin directly from other owners. Examples include Bisq, Remitano, and LocalBitcoins.com. Always exercise extra caution when purchasing Bitcoin directly from individuals.

Bitcoin Futures: For the more experienced investors, Bitcoin futures are another way to get involved in Bitcoin.

Mining: If you can afford ASICs, then you can absolutely join a mining pool and start earning Bitcoin.

Final Thought

Now that you have a grasp of how to own Bitcoin, you’re better prepared to start investing. Remember to do thorough research on any crypto exchange before you sign on. Read reviews, look at the supported currencies, and so on. Also, remember Bitcoin’s price is uber unpredictable, so only invest money that you can afford to lose.