Is Bitcoin A Bubble? Read This Before Investing

If you’re looking into Bitcoin, you’re probably wondering what it’s all about.

It remains controversial, and you’re probably not sure if it’s even a legitimate way to make money. Is there anything to the hype?

Most importantly, you’re probably wondering if Bitcoin is even a good investment.

Like anything related to investment, the answer is complicated and depends in large part on your personal preferences.

There is no “one right answer,” but there is a lot of evidence that shows Bitcoin has a bright future.

What does that evidence look like, and how can you benefit? Just read on!

The Hidden Pattern Behind Bitcoin’s Price

If you’re just getting started with Bitcoin, you need to know the history of the price of the crypto currency and understand what potential there is for growth.

Let’s start with the current price. This calculator will show you the current price of Bitcoin in comparison to the United States dollar (USD).

But the current price doesn’t tell the whole story. To truly understand the kind of investment potential behind Bitcoin, we need to look at the growth it’s had as a whole.

Of course, since Bitcoin is relatively new currency, we can’t go back very far with our understanding of the price valuation.

Bitcoin has only been around since 2009, and didn’t gain mainstream popularity until a few years after that.

When we look at the historical price of Bitcoin, you can quickly see how the currency is growing exponentially in value.

While it may not look like it on the chart, the truth is that Bitcoin has had a number of massive spikes.

 

Once in June 2011.

Another in November 2013 that made the 2011 spike barely register.

And currently in 2017, we’re experiencing another bout of growth that dwarfs the 2013 jump and makes it look like nothing.

So while the current trend makes it look like Bitcoin is a bubble about ready to burst, historical precedence shows that it could be a tiny predecessor of a spike 10x greater.

This is a common trend with stocks that climb quickly. Analysts predict them to be a bubble, but the overall trend creates an investment that skyrockets over time.

A great example of this is Apple. While it’s currently respected as a blue chip stock, it’s had its share of ups and downs over the years, leading analysts to cry “bubble” along the way.

Of course, none of this is guaranteed. Like any investment, hindsight is 20/20, and there is risk involved in the moment. Early investors in Apple didn’t know for certain their investments would make them millionaires.

But the point is that if you look at this as a long-term investment, you can stand to see another spike once the hype around this one dies out.

If you look carefully at the 2013 spike, those who gave up after two years ended up losing money. Same with those who gave up within two years of the 2011 spike.

But those who kept their money for three or four years following the hype saw gains of 5x or even 10x. And in investment terms, three or four years is nothing.

Those who wisely waited out the investment became millionaires.

Instant Millionaires Who Invested in Bitcoin Early

Sure, CEOs and celebrities like Cameron and Tyler Winklevoss of Facebook fame have grown rich on Bitcoin.

But what about the average, everyday person?

As with any investment, there are stories of unsuspecting people making investments early on, then seeing their holdings grow to huge amounts.

Bitcoin is no different.

One reporter ran into “Mr. Smith” at the upscale Island Shangri-La Hong Kong Horizon Club Lounge. He was a man who had invested early in Bitcoin and accumulated millions.

While he asked that his identity not be revealed, he explained and proved that he had bought Bitcoins early in 2010, and sold them in 2013 for a $2.3 million windfall.

Since then, he has been traveling the world in the highest of fashion, staying at 5-star resorts, flying first class, and eating at the finest establishments the globe has to offer.

Another instant Bitcoin millionaire is Kristoffer Koch, who bought some Bitcoins early in 2009. Then he forgot about the investment entirely.

When The 2013 spike happened, the new reports reminded him of the $27 he had invested years earlier, and he decided to cash out.

Kristoffer exchanged one-fifth of the coins for a new apartment which he began renovating with the newfound money.

The hidden secret to these instant millionaires is less than obvious. Instead of constantly trading and exchanging, watching prices by the day, they waited.

And that patience paid off, big time.

But will the same market factors that helped their meteoric rise to affluence affect you as well?

Let’s turn to what the experts say.

The Surprising Valuation Experts Are Giving Bitcoin

When you look at what major players in the investment space have to say about Bitcoin, the prospects look good.

Now, to be fair–many of these people have invested in Bitcoin or Bitcoin-related technology themselves, so they have a financial interest in promoting the currency.

But in many ways, that’s even more confirmation that they believe what they say.

Top investors don’t have time to play games, and their investments show that they’re willing to bet money on their predictions.

The first investor in Snapchat was Jeremy Liew of Lightspeed Venture Partners, someone who clearly has an idea for what investments will take off in the future.

Liew has stated that as markets become less stable around the world, the interest in Bitcoin will only grow.

“If you’re going to be an investor in anything,” he was quoted by CNBC, “you want to be where the most trading volume is happening, and right now that’s happening in Bitcoin.”

Another prominent leader in the technology space is John McAfee, founder of the anti-virus software that bears his name to this day.

He fully expects a single Bitcoin to be worth $500,000 USD within three years.

According to Michael Novogratz, who formerly worked as a manager at the $72 billion firm Fortress, Bitcoin will reach $10,000 in the next 6-10 months.

One of the members of the PayPal Holding, Inc.’s board of directors, Wences Casares, says he expects Bitcoin to reach $1 million in ten years.

While their numbers vary widely, many experts with a broad range of experience agree that Bitcoin will likely continue to grow in the coming months and years.

But what about the data? How does Bitcoin stack up to more “secure” investments?

How Bitcoin Compares to Other Investments

Of course, when you’re deciding whether or not Bitcoin is a good investment, you can’t just look at it in a vacuum. Instead, you need to consider how it compares to other investments.

After all, there is an opportunity cost associated with Bitcoin. The money you spend towards in Bitcoin is money you could spend elsewhere.

So is it worth it? Is Bitcoin where you’ll get the highest returns? When you compare it to other investments across 2017, Bitcoin has had far greater returns than anything else.

Bitcoin has outperformed even the high-performing stocks like Tesla (76% growth), Alibaba (72%), NVIDIA (66%), and Boeing (53%) with a staggering 304.54% growth in 2017.

That means your money would have tripled in less than 12 months. That’s a seriously good return!

Of course, like the investment website disclaimers say, past history does not represent future results. But it’s still a strong sign that Bitcoin has maintained such consistently high growth.

But what if you’re not looking at stocks as your primary investment tool? What if you’re comparing Bitcoin to more traditional forms of wealth storage, like gold?

Well, Bitcoin stacks up pretty well there, too.

The Pros and Cons of Storing Wealth in Bitcoin

Bitcoin has an interesting mix of factors going for it.

Like stocks, it can be considered an investment. There is a degree of risk involved, because the Bitcoin price (just like the value of Apple or McDonald’s stock) can go up and down.

Of course, that means there’s the potential for high returns as well. But some people would rather play it safe and invest in something they know will remain valuable for a long time.

The most traditional of these forms of wealth storage is in precious metals like gold or silver. Unlike stock in a company, the value is fairly guaranteed to hold its worth, even for centuries.

But here’s where Bitcoin stands apart from other investments. It’s also valuable as a measure of wealth storage like gold.

There is a limited supply of Bitcoin, and while it’s “mined” in a method very different from gold, it requires tremendous resources all the same.

Bitcoin is mined using high-caliber computers with state-of-the-art processors. This makes it nearly impossible for an average user to acquire more Bitcoin.

This scarcity also means that Bitcoin will hold its value in much the same way as gold.

In fact, there’s an argument to be made that Bitcoin will eventually become more valuable than gold.

The value of gold is based on a belief that the world’s remaining supply of gold is difficult to mine. This belief in continued scarcity is what keeps gold’s value steady.

When a precious metal suddenly becomes easy to acquire, it sends the price into a tailspin. After a simplified technique for processing aluminum was developed, the metal fell from a precious commodity to a household material in a matter of a decade.

Now, it’s fairly unlikely that a massive new gold deposit will be found close to the earth’s crust.

But the prospect of mining mineral-rich asteroids is very likely. While it sounds like hype, the truth is that the technology is being developed already by private companies.

It’s been predicted that asteroid mining could become reality in a decade or less. This could suddenly make gold easy to acquire, and thus force the price to plummet.

But whether or not you include sci-fi-sounding technology in your calculations or not, Bitcoin has a unique advantage over gold. Unlike gold, there is an absolute limit.

Only 21 million Bitcoins will ever be mined, and the amount to be mined cuts in half every four years. In addition, the mining difficulty will increase as more more Bitcoin get mined.

This means that while Bitcoin has only been around for less than a decade, we’ve already mined over 79% of all Bitcoins.

But it will take until the year 2140 to mine all 21 million Bitcoins. This puts Bitcoin in a position of extreme scarcity, making today’s coins far more valuable in years to come.

Bobby Lee, the founder of BTCC and the innovator to bring Bitcoin to China, has noted that there’s less Bitcoin mined daily than gold.

This points to a serious case of scarcity in Bitcoin. Based on the scarcity alone, Bitcoin can only go up in price, since it will never be easier to acquire Bitcoin as it is now.

Finally, Bitcoin has a value as a storage of wealth that can be a hedge against paper money.

It’s no secret that fiat currencies, that is, those controlled by a government, suffer from constant inflation. In struggling economies like that of Venezuela, Bitcoin has been a savior.

The United States dollar, for instance, is always worth more today than it will be in a year or a decade. This is good for the government, but bad for those saving their money.

This inflation means that your savings are actually decreasing in value. Like investments like stocks and commodities like gold, Bitcoin doesn’t have an inflation problem.

In fact, Bitcoin is more likely to grow in value the longer you hold it, making it a safer choice than paper money or bank savings in some respects.

But I’d be dishonest if I didn’t explain the possible problems with Bitcoin. Let’s take a look at some of the biggest risks of investing in the currency.

3 Must-Know Risks of Investing in Bitcoin

Like any investment, you need to know the risks associated with Bitcoin if you’re going to make a smart choice about where to put your money.

At its heart, there are three main issues with Bitcoin that could make investments problematic. Let’s look at each in turn.

Volatility

The first is volatility, that is, the fact that Bitcoin’s price changes frequently.

Because it’s a new currency, Bitcoin has yet to establish a clear value that remains stable from day to day. It can fluctuate wildly, making it difficult to estimate properly.

Of course, this happens with all currencies to some extent. If you were to exchange one US dollar for Mexican pesos, you’d get about 19 pesos.

If you traded in January 2017, however, you would have gotten 21 pesos. In a few months, it could be back up to 21 or even lower.

This is natural for a currency. But Bitcoin, especially in its early days, varied far more. It might be a few cents today, then as much as a few dollars the next day or even hour.

This made it difficult to accurately asses the value of Bitcoin, since it changed so often.

The good news about this risk factor is that the volatility is on a downward trend, from 16% in 2011 to just 2% today.

While 2% may not sound like a huge change from 16%, it’s now on par with the currency I mentioned earlier–the Mexican peso.

If you were taking a trip to Mexico, you probably wouldn’t be concerned about exchanging your money for pesos, since the currency will stay roughly the same.

Based on the data, the same is mostly true for Bitcoin at this point.

In the early days, small news events were usually at the heart of these changes. Anytime a major player commented on Bitcoin, the price would reflect the market’s reaction.

But today, Bitcoin’s price has stayed fairly consistent during times of both good and bad press.

When China banned Bitcoin in September of 2017, the Bitcoin exchange rate took a dip, but recovered rather quickly to an even higher amount.

The same thing happened when JP Morgan’s CEO Jamie Dimon controversially called Bitcoin a “fraud” in October 2017. Despite the bad press, Bitcoin recovered yet again.

(Especially when it was revealed afterwards that JP Morgan was in fact one of the most active buyers of a Bitcoin tracking fund.)

In short, Bitcoin’s ragged edges as a new currency are gradually softening, but it will still take a while before it’s completely stable.

Regulatory uncertainty

When any technological changes starts a tectonic shift in the global economy, there is some doubt as to how government agencies will handle it.

Governments have struggled to find their place in regulating new technologies like the internet, a problem that continues even to today.

This causes regulatory uncertainty, meaning companies are unsure of what will happen when the government takes a side.

In the case of the internet, even recent changes have caused a decrease in infrastructure investment.

Companies simply aren’t willing to invest if the government could limit or restrict the technology in a few months or years.

The same thing is happening with Bitcoin.

Regulation globally is mixed, to put it charitably.

Laws and restrictions across the world varies by country, with some accepting it (indicated by green on the map), others banning it (formally banned represented by red; hostility by yellow), and many without a position yet (represented by dark grey.)

This means that international Bitcoin usage is still in a state of limbo, and it’s unclear how things will sort themselves out in the coming years.

On the positive side, most western industrial nations, including the US, have given support for the currency. This provides a strong reason to have faith in its acceptance.

But most countries in the developing world, most notably Asia, are enacting restrictive policies that could do serious harm to Bitcoin in those countries.

Future technology

The final issue with Bitcoin is the onslaught of new technologies.

The same technology that has allowed Bitcoin to flourish continues to grow.

More and more developments are on the horizon, and there is some concern that these will compromise Bitcoin’s fledgling popularity.

There are two specific concerns at the forefront of the speculation.

First is the possibility of hacking Bitcoin services. The Bitcoin protocol itself has never been hacked and is considered very safe by most security experts.

But programs that run Bitcoin exchanges and wallets are notoriously unsafe. Most Bitcoin programs are less secure than banks, making them prime targets for rogue hackers.

There are ways around this, of course. The safest is the simply keep your Bitcoin private key (essentially a password) in a safe place rather than stored on a Bitcoin company’s database.

The second concern is over quantum computing. This is a new form of computer that uses technologies based on quantum mechanics that allows for exponentially faster computation.

This means that while computers currently can’t hack the private keys used by users, a quantum computer could do just this.

Companies have already begun to develop quantum computing chips, though the technology is far from mainstream usage.

But experts seem to indicate that the quantum computer that would be required for hacking Bitcoin in this way is a decade or more away from being created.

Google’s quantum computing expert John Martinis has stated that in regards to quantum computing, we are “closer to Kitty Hawk than the moon.”

Another cryptographer stated that the first hack would need to be performed on a $50 million computer, something far outside the range of almost any single entity.

By that time, experts expect the Bitcoin technology to be developed to a point where computing won’t be able to crack the codes so easily.

Today, hacking and security teams use increasingly sophisticated technology to combat the other.

The future will likely have the same duality, with the advanced technology of quantum computing being used to strengthen Bitcoin and stay one step ahead of hackers.

At the end of the day, only you can decide whether the risks are worth it. If you want to move ahead, here’s what you need to know.

The Bottom Line on Investing in Bitcoin

If you’re going to invest in Bitcoin, remember a few key ideas.

First, never invest more than you’re comfortable losing.

Of course, the chance that Bitcoin will suddenly plummet to $0 per coin is unlikely, but could happen, just like any stock could take a sudden dip and cause you to lose money.

Second, be wary of “FOMO” buying, or buying due to “fear of missing out.” If you see people making significant money from Bitcoin, this is probably the worst time to buy Bitcoin.

It means people are selling for a high price, and this is the exact wrong time to buy. Instead, wait for a time when people aren’t making money from Bitcoin, when the price is low.

And finally, you should expect the investment to pay off in years, not months or days. Plan to hold your investment for a while before trying to cash in.

The earlier you start, the more of a return you’ll see on the money you put into Bitcoin. When you see a good opportunity, go ahead and invest.

As one commenter on reddit bemoaned missing out when Ethereum, another cryptocurrency, don’t live in regret because you passed up the perfect opportunity.

By using smart investment strategies, you can reap healthy returns. Don’t become eager or reckless. But with moderation and patience, you can see an investment in Bitcoin pay off.

So, is Bitcoin a Good Investment?

If you’re considering investing in Bitcoin, you need to be sure that it makes sense for your financial strategy.

To find that out, you need to examine the history of Bitcoin and the current price. Understand that it’s a price that varies, but is becoming more steady over time.

Investing early has turned many unsuspecting investors into millionaires, and it’s not impossible for the same to happen today.

In just a few years, a small investment can achieve growth of 10x or even higher.

When compared with more traditional investments like stocks and bonds over the last year, Bitcoin is the clear winner.

With growth of 890% in the last 12 months alone, there is the potential for incredible gains. Experts are also projecting Bitcoin to grow even higher in the coming years and decades.

Of course, Bitcoin is like any investment. There is some risk involved. With Bitcoin, the biggest risks are its volatility, regulatory uncertainty, and new technology.

As Bitcoin continues to gain prominence, however, it remains stable and increases in value on a regular basis over time.

The time you’re willing to dedicate to Bitcoin will largely determine the results you get. As the Chinese proverb goes, the best time to plant a tree was 20 years ago.

The second best time is now.

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