Picture Credit: Andre Francois
“Bitcoin” is a term we hear very often, and its popularity and value has skyrocketed ever since it was launched to the public. People are starting to use it everywhere in day-to-day life as it’s a safe and effective way of completing a transaction. This digital currency is so popular that the entire nation of El Salvador adopted it as an official legal tender. However, the issue still stands that a lot of people are reluctant to dip their finances in digital assets mainly because of how new the whole concept still is. So, let’s discuss what exactly a cryptocurrency is and how you can get started to invest in digital assets like Bitcoin.
What is a Cryptocurrency?
A cryptocurrency is defined as a collection of binary data which is designed to work as a medium of exchange. What this means is that it acts as a payment method which can be exchanged online for goods and services. So, it’s just like using bank notes physically in exchange for goods and services but the transactions occur online.
The convenience of not having to worry about carrying and managing physical bills is only part of the benefit of using cryptocurrencies. When we use banking systems and applications to transfer money, we are restricted to the service provided by that individual bank and usually this entails a high transaction fee and long waiting periods to complete the transaction. However, when we use Bitcoin for transactions and payments, the full transaction can be completed in just 10 minutes and at a significantly cheaper price.
There is another key aspect to Bitcoin that makes it unique. It is completely open source. Bitcoin has no central authority which controls it, instead it is managed by the network, and anyone can take part. All the transactions that occur are available in an online public ledger but the identities of the people behind the transactions are anonymous because only the wallet addresses are public. This is called blockchain technology and it makes hacking extremely difficult because the transactions are traced, verified and a record of the transaction is kept by millions of nodes (computers) before being accepted.
Picture Credit: David Shares
Bitcoin is also an investment. The value of Bitcoin fluctuates in conjunction to its demand and supply. Back in 2010, a single Bitcoin was worth less than a dollar, but the price of one Bitcoin as of now is $68,000 (price of 1 bitcoin as of November 5th, 2021).
Cryptocurrencies are everywhere and they are only getting more popular by the year. Bitcoin is only one type of cryptocurrency, there are many other ways you can get involved in cryptocurrencies and start investing in them.
Stock Exchange Trade Funds
An Exchange Trade Fund (ETF) is a type of security that tracks an index, sector or another asset which can be purchased and sold on a stock exchange just like regular stocks can. To understand it better, think of a Stock ETF as buying a share of a basket which contains actual securities, for example a bonds basket will be packed with a collection of government incorporated bonds and instead of buying all of those bonds individually, you can buy a share of it and trade it like stocks. This is a perk of trading ETF’s as they are not very expensive to purchase, and they are easy to buy and sell.
You can now purchase Bitcoin and other crypto related ETFs and trade them like stocks to get started on your digital asset journey. Companies that have launched so far are Digital Galaxy, Coinbase and MicroStrategy. They charge around $8.50 for every $1000 you invest but it’s a great place to start getting exposure to cryptocurrencies.
Buying Stock in a Bitcoin Related Company
Alternatively, you can also buy stocks in a Bitcoin related company to get indirect exposure to the market. The company itself has to go through the process of managing the cryptocurrency, so you don’t need to be involved in those complications. Therefore, many people choose this option to get started on cryptocurrencies. Sweta Bhargav, principal financial advisor at Adviso Wealth, comments “It can be easier for people to get into industries that they already understand and who are adopting these technologies to make them more efficient. It can be a better place to start for investors.”
Coinbase Global Inc., which is a site you can use to easily sell, buy and store Bitcoin, is a good example. Since most of its revenue comes from fees it charges users to deposit and trade crypto, the exchange fees directly correlates with the price of Bitcoin. In a statement made to the SEC (Securities and Exchange Commission) the company commented “our net revenue is substantially dependant on the prices of crypto assets and volume of transactions conducted on our platform”.
It’s even possible to buy stocks in a company that have substantial holdings in Bitcoin, such as Tesla who have an estimated $1.6 billion worth of Bitcoins.
There’s always the option of buying altcoins as well. An altcoin is the name given to cryptocurrencies other than Bitcoin. Ethereum, which is the second-largest cryptocurrency after Bitcoin has risen from being worth around $1000 at the start of the year, to being worth more than $4000 per Ethereum as of November this year. So, as we can see investing in cryptocurrencies other than Bitcoin can also yield huge profits. You can even invest in smaller cryptocurrencies to understand the art of trading before you move onto more expensive cryptocurrencies like Bitcoin.
Picture Credit: Pierre Borthiry
The cryptocurrency market is a very lucrative one, and it’s not too late to cash in and earn big. Some experts even predict that the price of Bitcoin could increase to $250,000 per Bitcoin by as early as 2025, and platforms like Coinbase make trading and learning about cryptocurrencies much easier. However, it’s important to understand that the price of Bitcoin and other cryptocurrencies can fluctuate, so there is still a risk associated with this investment. The question which prevails is, are you ready to take a chance?
November 10th 2021 | 5:40 PM