The hype behind Bitcoin has largely been based on its heroic rise in price. From $250 per Bitcoin in 2013 to an all-time high of just over $66,000 in 2021, these astronomical gains have caught the attention of more than the seasoned trader.
Bitcoin’s dramatic rise has created such outsized returns for investors that the term “crypto millionaire” has been coined. Those lucky enough to have bought Bitcoin early on are not the typical investors one would expect. In fact, big investors are among the last to get their hands on crypto assets because an investment in Bitcoin was deemed too risky.
Jamie Dimon, CEO and Chairman of JP Morgan, went so far as to say, “I personally think Bitcoin is worthless,” according to CNBC. Legendary investor Warren Buffett was also anti-Bitcoin, turning his nose up at Bitcoin in 2018, comparing it to “rat poison”. Nonetheless, Bitcoin overtook Buffett’s holding company, Berkshire Hathaway, in gains over the next four years. Regardless of your position on Bitcoin, the price has risen over the long term.
How does Bitcoin accumulate its value? And is Bitcoin worth investing in or has the train already left the station? These questions hold simpler answers than you might expect.
How is Bitcoin funded?
Bitcoin is technically not funded by anyone; instead, his network incentivizes Bitcoin miners by rewarding their efforts with coins. Bitcoin mining is the process by which the network verifies transactions. Miners use expensive hardware to compete for the next block on the Bitcoin network. The fastest miners solve mathematical computational problems that verify transactions on the network.
Miners are essential to the Bitcoin network as they move transactions forward and earn newly minted Bitcoins. Bitcoin mining has a high barrier to entry and uses large amounts of energy.
This bitcoin mining process is known as proof of work (PoW). Many cryptocurrencies are replacing the PoW concept with Proof of Stake (PoS), a more affordable and energy-efficient transaction verification process. While the PoS concept is likely to overtake PoW in popularity, Bitcoin will stick with PoW, at least for now.
What determines the price of Bitcoin?
The price of Bitcoin is determined by a simple variable: demand. Crypto assets move the same way stocks move; more buyers than sellers pushes prices higher and vice versa. This application is often affected by government laws and regulations. For example, when China announced the Bitcoin ban, the price fell. On the other hand, when countries announce the formal adoption of Bitcoin, the price tends to go up. The price can also be influenced by influential people, companies and economic developments. The many factors that go into Bitcoin pricing drive its volatility.
Is Bitcoin worth investing in?
Bitcoin could be worth investing. With the price well above all-time highs, many see it as a good buying opportunity. Recent geopolitical risks associated with potential Fed rate hikes have scarred the market. This sentiment can be seen in the Bitcoin Fear and Greed Index.
The Fear and Greed Index operates on a scale of 0 to 100 where over 50 means the market is considered greedy and under 50 the market is considered fearful. A fearful market is usually oversold and a greedy market is overbought. The Fear and Greed Index hovered around fear from late 2021 to early 2022, as seen in Alternatives index below.
If you are interested in buying Bitcoin, a great method to try is dollar cost averaging. This strategy uses a predetermined amount of Bitcoin purchases on a certain day. Transactions can take place weekly, bi-weekly, monthly, or whatever suits your financial situation. Many crypto trading platforms exist to facilitate this action. Some good places to buy Bitcoin are Gemini, eToro, and Webull.
Gemini is a cryptocurrency exchange and custodian that offers investors access to over 100 coins and tokens. Founded in the United States, Gemini is expanding globally, particularly in Europe and Asia. The offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x.
Gemini is one of the only brokers that offers multiple platform options depending on skill level. New investors will love Gemini’s streamlined mobile and web app interface, while advanced investors might appreciate all the tools that ActiveTrader comes with.
In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review.
- New investors looking for a simple mobile and web app
- Day traders looking to use technical analysis tools
- Users looking for a one-stop-shop to buy, sell, and store all their cryptos
- Easy and fast registrations – can start in as little as 5 minutes
- Multitude of platforms to accommodate traders of all levels
- Hot wallets include insurance to protect against theft and hacking attempts
- Charges both commission and convenience fees for users who buy and sell through the desktop or mobile app
securely through the eToro website
Disclosure: eToro USA LLC; Investments are subject to market risk, including possible loss of principal.
eToro, headquartered in Cyprus, England and Israel, has been providing forex products and other CFD derivatives to retail clients since 2007. A major strength of eToro is its social trading operations, including OpenBook, which allows new customers to copy the best performance of the platform. Its social trading features are top-notch, but eToro loses points due to its lack of tradable currency pairs and disappointing research and customer service features.
- US-Based Cryptocurrency Traders
- Investors looking to CopyTrade with other traders
- Simplified user interface
- Several major cryptocurrencies and altcoins
- Extensive network of social trading features
- Large customer base for new traders to emulate
Why is Bitcoin useful?
Bitcoin is useful because it is a fair and transparent form of currency that cannot be controlled by one person or group. Bitcoin is peer-to-peer, meaning it waives fees charged by banks. The finite amount of Bitcoin – no more than 21 million Bitcoin in existence – can make it an inflationary hedge against overprinted fiat currencies.
With more dollars in circulation to spend, valuable assets such as gold, commodities and bitcoin tend to rise as the devaluation of the dollar means increased valuation of all the commodities the dollar is used to buy. Bitcoin’s peer-to-peer network, decentralized ownership, and limited supply could become a more secure form of currency.
How was Bitcoin created?
Bitcoin was founded by an anonymous entity by the name of Satoshi Nakamoto in 2009. Satoshi Nakamoto was active in online forums explaining the idea behind Bitcoin, a peer-to-peer monetary unit that would transform the modern banking system. Alongside these forums, a Bitcoin white paper explained the ideology and calculus behind Bitcoin.
While many have claimed to be Satoshi Nakamoto, the identity of the person or group of people remains unresolved. This plan was likely designed, as the purpose of Bitcoin is to serve as a form of money for the people without a single leader or group in charge. This selfless act contributes to Bitcoin’s continued superiority over other crypto assets with public teams and leaders.
How is the Bitcoin network secure?
The Bitcoin network pays miners to secure the blockchain and successfully validate a block, earning 6.25 bitcoins. With the high price of mining equipment and the unpredictability of getting a block, pool mining has become more popular. Groups of miners team up and win more consistently. Bitcoin funds and also serves as a backbone technology for developers building Layer 2 solutions, such as The Lightning Network, a scaling solution to reduce transaction fees.
Bitcoin Outlook for 2022 and Beyond
Predicting Bitcoin’s price has been a recipe for disaster. Many in the crypto space believed that the price per coin would reach new all-time highs of $100,000 per coin by the end of 2021. Instead, the coin bottomed out at around $32,000. Although it is still possible for Bitcoin to reach this level, experts agree that continued volatility can be expected. In the long term, crypto enthusiasts believe that Bitcoin’s value will increase as adoption increases.
A common comparison is between Bitcoin and gold. Gold holds a market capitalization of approximately $12 trillion. Bitcoin holds a market cap of less than $1 trillion. If Bitcoin is able to provide a store of value similar to gold, the price per Bitcoin and its market capitalization could increase to more closely mirror that of gold. Although a daunting task, Bitcoin is much easier to access and spend than physical gold.
As the market continues to mature, price volatility is to be expected. Those looking to be a part of this crypto transformation need to have a strong stomach and hold on tight.