Should I Buy Bitcoin? An In-depth Analysis

As cryptocurrency keeps rising as a popular investment class, many of you might wonder “Should I buy Bitcoin?” This is a pretty common question among aspiring crypto investors considering that Bitcoin is the most popular cryptocurrency in the market.

Bitcoin works using a technology called blockchain that makes it decentralized, offering a level of privacy and freedom not found with fiat money. This untapped potential is arguably why many people are interested in investing in this new technology.

However, Bitcoin's value can change a lot against traditional currencies, making it a risky investment but also offering the chance for high returns. To answer the question “Should I buy Bitcoin?” properly, we’ll explore why you should invest in this coin and the potential risks that may come from buying it.

I will also provide you with some recommendations for the best exchange platforms like Binance, Kraken, and Coinbase to help you buy Bitcoin with no hassle. So, is Bitcoin worth investing in? Let’s explore!

Benedetto Biondi

CEO at Folks.Finance

Being a DeFi lecturer at a prestigious university, what are the most common misconceptions about cryptocurrencies that you encounter among students?

Some people think that cryptocurrencies are only used for illegal activities such as money laundering and drug trafficking. While it is true that cryptocurrencies have been used for illegal activities in the past, they also have legitimate use cases, such as cross-border payments.

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Should I Buy Bitcoin? The Case for Investing in Bitcoin

The first possible answer to the question “Should I buy Bitcoin?” is “Yes”. However, it would be irresponsible for you to take that answer at face value without understanding the reasons behind it. To help you with that, we’ll explore three potential benefits of investing in Bitcoin. 

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Potential for High Returns

The chance of getting high returns for their investments is arguably one of the most common reasons why people buy Bitcoin. Some potential investors may ask: “Is Bitcoin worth investing in terms of its profitability?” before jumping in.

To answer the question, we need to examine the historical performance of Bitcoin. Throughout its existence, Bitcoin has experienced several peak periods where its price skyrocketed, giving its adaptor exceptional profit.

The first major peak happened in late 2013. Bitcoin experienced its first significant surge, reaching a peak of around $1,000 per coin. This was a monumental moment because it was one of the first times Bitcoin gained substantial media attention and public interest.

The surge was driven by several factors, including increased media coverage, growing interest from investors looking for high-return opportunities, and the beginning of what would be a broader acceptance of Bitcoin as a legitimate financial asset.

Naturally, many early adopters of Bitcoin shared how much they gained during this peak period on online forums like Reddit. This ignited the question “Should I buy Bitcoin?” in many people, increasing their curiosity about Bitcoin and cryptocurrencies.

The next big moment for Bitcoin happened in 2017. Bitcoin's price skyrocketed to nearly $20,000. This period is often referred to as the "Bitcoin boom" and marked the peak of a cryptocurrency frenzy that saw the value of Bitcoin and other cryptocurrencies surge to unprecedented levels.

This boom was fueled by a combination of hype, speculative trading, and the entrance of more mainstream investors into the market. There was also excitement about the potential of blockchain technology, and ICOs (Initial Coin Offerings) were at their height, attracting significant investment into the crypto space.

Starting in 2020 and continuing into 2021, Bitcoin experienced another massive surge, reaching an all-time high of over $60,000 in April 2021. This period was characterized by heightened interest from both retail and institutional investors.

Several factors contributed to this surge. The COVID-19 pandemic led to global economic uncertainty. During this period, many investors started to wonder: “Many of my asset values are now declining, should I invest in Bitcoin?”, which drove the price higher due to an increase in buyers.

Additionally, there was significant institutional adoption, with companies like Tesla and Square investing in Bitcoin and PayPal introducing cryptocurrency transactions. 

This period also saw the rise of DeFi (Decentralized Finance), which further fueled interest in cryptocurrencies. They believe that considering the growth of blockchain technology and the increasing popularity of cryptocurrencies in general, investing in Bitcoin early is the way to go.

So, is Bitcoin a good investment in terms of potential returns? The answer is: "Yes, it can be". When we compare the returns to traditional investments like stocks, bonds, or gold, Bitcoin stands out for its volatility and the potential for high returns. 

Traditional investments usually offer more steady, predictable growth over time. Stocks, for example, have historically returned about 5-8% annually after adjusting for inflation^[1]. Bonds are generally safer but offer lower returns. Gold has been a traditional hedge against inflation and economic downturns but typically doesn't see the explosive growth that Bitcoin has experienced.

Increasing Acceptance and Adoption

Another common question regarding this topic is: “Should I buy Bitcoin if it is not currently accepted as a legitimate currency in most places?” This is a valid question because you’d want to invest in something that has a real-life application and value. Fortunately, Bitcoin’s adaptation is heading in a positive direction.

The U.S. SEC's approval of Bitcoin exchange-traded funds (ETFs) in January 2024 signifies a major advancement in integrating Bitcoin into the traditional financial system. These ETFs, including offerings from BlackRock and Invesco/Galaxy Digital, bridge cryptocurrencies and mainstream finance, aiming to broaden Bitcoin's appeal.

Analysts predict that these ETFs may draw substantial investment, around $100 billion by 2024, raising concerns about the financial system's heightened exposure to crypto markets. This integration also poses regulatory challenges as authorities worldwide strive to balance consumer protection, financial stability, and innovation. 

This evolving landscape shows that government bodies need to adopt a nuanced regulatory approach to managing risks while facilitating the growth of cryptocurrencies at the same time. So, if you're still wondering: "Is cryptocurrency safe for investment in my country?", keeping up with the local laws should be your top priority. 

Bitcoin as a Diversification Strategy

As you dive deeper into the question “Should I buy Bitcoin?”, you might come across this terminology: Diversification. Think of diversification as not putting all your eggs in one basket. If you only invest in one thing, and that thing doesn't do well, you could lose a lot. But if you spread your investments around, some might do well even if others don't, helping to protect your money overall.

So, is Bitcoin a good investment diversification asset? There are two main reasons why it can be. First, Bitcoin is different from traditional assets. It is often called "digital gold" because, like gold, it can be a way to store value outside the usual money system.

But unlike stocks, bonds, or real estate, Bitcoin's price doesn't move exactly in step with these assets. Sometimes, Bitcoin might go up when stocks go down, and vice versa. This difference in movement is where the diversification benefit comes in.

Second, Bitcoin has a low correlation with traditional assets. Correlation is a fancy term for how closely two things move together. If they move exactly in sync, they have a high correlation. Having a low correlation means when stocks might be doing poorly, Bitcoin might not be, which can help balance your portfolio.

Speaking of portfolio, investing in Bitcoin also comes with several investment benefits, including:

• Risk management: By spreading your investments across different types of assets, including Bitcoin, you reduce the risk of losing a lot of money all at once. If one investment goes down, another might go up or stay stable, helping to even things out.
• Protection against Inflation: Bitcoin is often viewed as a hedge against inflation. Inflation happens when the buying power of money goes down, usually because there's more money in circulation. Since there's a limited amount of Bitcoin (only 21 million will ever exist), some people think it's less likely to lose value due to inflation than regular money.
• Access to innovation: Adding Bitcoin to your portfolio opens the door to the blockchain and cryptocurrency sector, an area ripe with innovation and growth potential. It's more than diversification; it's investing in the future of finance, including cutting-edge technologies like DeFi and NFTs, which might offer growth opportunities beyond traditional markets.

With that being said, is Bitcoin a good investment option to diversify your portfolio? I would say yes. Branching out to a new and more modern investment model could open up tons of new opportunities. Just remember that exercising due diligence is crucial before joining this exceedingly volatile market.

Should I Buy Bitcoin? The Risks of Investing in Bitcoin

Another possible answer you’d get when asking someone “Should I buy Bitcoin?” is “No.” Much like any other investment option, buying Bitcoin also comes with some possible drawbacks. Here are some potential risks you need to know of before investing in Bitcoin. 

Price Volatility

In the previous section, I showed you how Bitcoin has experienced several major peak periods. However, you need to know that it also faced sharp price declines after those peak moments.

After the first major peak in 2013, Bitcoin's price dropped by more than 50% in the following months. The 2017 Bitcoin Boom was also followed by a significant bust in 2018, with Bitcoin's price tumbling down to around $3,200 by December.

This cycle of rapid growth followed by a sharp decline showed the extreme volatility of Bitcoin and led to increased scrutiny from regulators and financial analysts. Cryptocurrencies, including Bitcoin, are still relatively new and most people are still figuring out how much they are worth.

Questions like “Should I buy Bitcoin?” and “Is Bitcoin a good investment asset?” are still coming up very often. These represent the speculation for this cryptocurrency. When lots of people are speculating, it can drive the price up quickly if everyone is excited, or down just as fast if everyone gets scared.

Since many people buy Bitcoin hoping it will increase in value, rather than using it as currency, this speculation adds to its volatility. If everyone suddenly decides to sell, the price can plummet. If there's a rush to buy, the price can skyrocket.

Market sentiment is another strong factor that affects the Bitcoin price, even more so than traditional assets like stocks. Positive news or hype can lead to more people wanting to buy Bitcoin, pushing the price up. At the same time, negative news or fears can cause people to sell, driving the price down. I recommend using tools like Bitdegree's crypto tracker to stay informed about how market sentiment affects price movements.

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Regulatory Risks

Regulatory risks for Bitcoin are about the rules and laws that governments might put in place around buying, selling, or using Bitcoin. Since Bitcoin operates outside of the traditional banking systems, governments are trying to figure out how to deal with it. These rules can change how easy or hard it is to use Bitcoin, affecting its price and how people invest in it.

Around the world, governments have different views on Bitcoin. Some countries are open to it, seeing it as a chance for innovation in finance and technology. They might create friendly laws that make it easier for people to use and invest in Bitcoin.

Meanwhile, other countries are cautious or against it. Most of them are worried about fraud, money laundering, or losing control of the financial system. These countries might ban Bitcoin or make strict rules that limit how it can be used or make it less attractive to invest in.

This mix of approaches means that the regulatory landscape is like a patchwork quilt, with each country having its piece of the puzzle. This can make it tricky for investors since they have to keep up with different rules in different places.

When rules are always changing, or it's unclear what new rules might come, it will affect how you answer “Should I buy Bitcoin?” People might be less likely to invest in Bitcoin if they're worried that new regulations could make it harder to use or less valuable.

New regulations can also make it more expensive to buy and sell Bitcoin or make it harder to access. This can discourage new investors and affect the overall demand for Bitcoin.

Based on the current adaption trends for Bitcoin and other cryptocurrencies, there are a few areas where we might see more regulations:

• Consumer protection: Making sure people don't get scammed or lose their money.
• Financial crimes: Preventing money laundering and terrorism financing.
• Taxation: Figuring out how Bitcoin investments should be taxed.
• Market stability: Ensuring that the wider financial system remains stable, even if there are big changes in Bitcoin's price.

Now you might wonder: "Is Bitcoin worth investing in if more laws and regulations are being adopted?". I will argue that it is. One thing worth noting is that while these regulations may reduce the potential profits from buying Bitcoin, they can help make it a safer asset for the general public and reduce its volatility.

Market Manipulations, Frauds, and Security Concerns

If you ever tuned in to any crypto-related news, I’m sure you’ve stumbled upon news about market manipulations and frauds. Because the crypto market is still relatively new and unregulated in most countries, criminal cases are unfortunately still relatively common.

Two of the most common criminal cases in this space are market manipulation and fraudulent acts like Ponzi schemes. There are two major Ponzi scheme cases in the Bitcoin market.

• Mt. Gox Hack (2014): Once the world's largest Bitcoin exchange, Mt. Gox went bankrupt after 850,000 Bitcoins were stolen, likely due to hacking. This event shook the Bitcoin community and highlighted security risks in the ecosystem.
• BitConnect (2017): It promised high returns through a trading bot. BitConnect turned out to be a Ponzi scheme, collapsing and causing losses for many investors when authorities began to investigate and its exchange rate plummeted.

These cases can act as cautionary tales about doing your due diligence when investing in Bitcoin. So now you might ask, “Should I buy Bitcoin if there are many scam cases in the market?” and “Is cryptocurrency safe to invest in if a large exchange like Mt. Gox can be hacked?” 

Well, I can’t give you a straightforward answer, but there are some steps you can take to spot and avoid potential scams while investing in Bitcoin:

• Unrealistic promises: Be cautious of any scheme promising guaranteed high returns with little or no risk. In the world of investments, higher returns usually come with higher risks.
• Lack of transparency: Legitimate operations provide clear information about their business model, location, and the team behind the project. Be wary of projects that don't share this information.
• High-pressure tactics: Scammers often try to create a sense of urgency, pushing you to invest quickly without doing proper research.
• Unsolicited offers: Be cautious of unexpected investment offers, especially those that come via social media, email, or phone calls.

Make sure to always research the investment thoroughly before putting your money in. Look for reviews, read the whitepaper if there's one, and check out the team behind the project. Don’t forget to keep up with the news in the cryptocurrency space. Being aware of common scams and recent fraud cases can help you spot red flags.

Consider applying additional security measures for your crypto wallet by enabling Two-Factor Authentication (2FA), securing private keys, and using a multi-signature wallet.

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How to Invest in Bitcoin

At this point, you've probably come up with an answer to your question: "Should I invest in Bitcoin?" and decided to join the market. However, the first step into the crypto scene can be confusing for beginners. To help you with this, I'm going to show you the essential steps on how to start investing in Bitcoin. We’ll also explore the best way to manage your investment properly.

Buying Bitcoin

Before buying Bitcoin, you need somewhere to store it. A Bitcoin wallet gives you a digital address to receive and send Bitcoin. There are different types, like online wallets (convenient) and hardware wallets (more secure). Choosing the right wallet boils down to picking one that offers good security features, affordable fees, and convenience^[2].

Some of the most popular crypto wallets include Ledger Nano X, Binance Wallet, and Coinbase Wallet.

Once your crypto wallet is ready, you must choose an exchange platform. An exchange is like a marketplace for buying and selling Bitcoin. Choosing the right one is crucial for a good experience.

Much like choosing a wallet, there are several criteria to consider when picking a crypto exchange, including:

• Security: Look for exchanges with a strong track record of security and customer funds' protection.
• Fees: Different exchanges charge different fees for transactions. Look for one with reasonable fees.
• Ease of use: If you're new, you might want an exchange with an easy-to-use interface.
• Reputation: Check out reviews and forums to see what others say about the exchange.
• Regulation: An exchange that follows government regulations is generally a safer choice.

Popular exchanges like Binance, Kraken, and Coinbase are great if you’re looking for a reputable platform that offers a wide range of cryptocurrencies to buy and sell.

Once you've chosen an exchange, you'll typically need to sign up, verify your identity (to follow regulations), and then deposit money (like from your bank account or a credit card) to start buying Bitcoin.

You can also buy this crypto from Bitcoin ATMs. These work like regular ATMs but for Bitcoin. You put in cash and get Bitcoin sent to your digital wallet. They're convenient but can have high fees. Peer-to-peer (P2P) platforms are also a viable option if you prefer to buy Bitcoin directly from other people. This can give you more control over the transaction terms and might offer more privacy. 

But you might ask: ”Is cryptocurrency safe if I buy it from sources other than popular exchanges?” The answer is yes, as long as you make sure to use a reputable platform and be cautious of scams. Remember to apply the steps to spot shady projects I mentioned previously and do your due diligence.

Managing Your Investment

Another question that typically follows “Should I buy Bitcoin?” is “How do I manage my crypto and why is it important?” Managing Bitcoin investments wisely is key to safeguarding your assets and ensuring they remain accessible and secure. 

One of the key elements in managing your crypto investment is your choice of storage or crypto wallet. Let's break down the storage options and share some tips for secure management.

There are two general storage options available: hot and cold wallets. Hot wallets are digital wallets that are connected to the internet. They can be apps on your phone, software on your computer, or services provided by exchanges. The "hot" part means they're online, which makes them convenient for making transactions but also more vulnerable to hacks and theft because they're accessible through the internet.

In contrast, cold wallets are offline storage solutions. They can be hardware wallets (like a USB device) or even paper wallets (your Bitcoin addresses and private keys printed on paper). Since they're not connected to the internet, they're considered much safer from online attacks. The trade-off is that they're less convenient if you want to make quick transactions.

So, now the question is: “Should I buy Bitcoin using a hot or cold wallet?” The answer is both, depending on your needs and situation. Some experienced crypto investors keep a small amount of Bitcoin in a hot wallet for regular transactions and the bulk of their investment in a cold wallet for long-term storage.

Alternatives to Buying Bitcoin

There are other ways to invest in blockchain technology aside from buying Bitcoin. You can either buy other cryptocurrencies or invest in blockchain-related businesses. Take a look at the following alternatives that may broaden your investment options.

Other Cryptocurrencies

Asking "Is Bitcoin a good investment?" leads us to consider other digital currencies too. Here are some of the top alternatives to Bitcoin, often called "altcoins," and why people might consider them.

• Ethereum (ETH): Ethereum is not just a cryptocurrency; it's a platform for building decentralized applications (dApps) using smart contracts. People like it because it's more than a currency – it's a whole ecosystem for creating and running applications without a central authority.
• Ripple (XRP): Ripple focuses on making international money transfers faster and cheaper. Banks and financial institutions often use it, making it appealing to those interested in the future of finance and cross-border payments.
• Polkadot (DOT): Polkadot enables different blockchains to transfer messages and value in a trust-free fashion; it's about connecting the dots between blockchains. This interoperability makes it stand out for those interested in a more connected blockchain ecosystem.

Each of these alternatives brings something different to the table, whether it's faster transactions, broader uses beyond currency, or improved security and interoperability. Depending on your needs and interests, one of these might be more suitable than Bitcoin.

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Blockchain Technology Investments

Some of you might still wonder “Is cryptocurrency a good investment?” and curious if there are other ways to join the Blockchain space. If you have this question, then stocks in blockchain technology companies, blockchain ETFs, and mutual funds are your answers.

The first option is buying traditional stocks in companies that develop blockchain technology or use it innovatively. Investing in these stocks lets you benefit from the growth of blockchain without the volatility of Bitcoin prices.

You can also opt for ETFs. These are funds that you can buy and sell on the stock market, just like individual stocks. A blockchain ETF includes a mix of companies involved in the blockchain industry. This spreads out your risk because you're not just investing in one company or one cryptocurrency.

Blockchain mutual funds can also be a good alternative. Similar to ETFs, mutual funds allow you to invest in a portfolio of blockchain companies. However, mutual funds are managed by professionals who make investment decisions on your behalf.

Choosing stocks, ETFs, or mutual funds related to blockchain can be a safer option than buying Bitcoin directly. They offer exposure to the technology's growth potential while mitigating some risks associated with the volatility of cryptocurrency markets.

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Conclusion

I'm sure now you understand that there is no straightforward answer to the question “Should I buy Bitcoin?” It all depends on your financial situation, risk tolerance, investment goals, and interest in engaging with the digital currency space. 

Bitcoin, with its potential for high returns, also carries significant risks due to its volatility, regulatory uncertainties, and the evolving nature of the cryptocurrency market. 

It's essential to do your own research, consider diversifying your investments to include not just Bitcoin but also blockchain technology companies, ETFs, and mutual funds, and possibly consult with a financial advisor. 

Remember, investing in Bitcoin or any alternative should align with your long-term financial strategies and not be driven by the fear of missing out on short-term gains. So the answer to “Is cryptocurrency a good investment?” depends on your willingness to accept the risks in pursuit of potential rewards in this innovative, yet uncertain market.

If you decide to buy Bitcoin or any other cryptocurrency, make sure to check out Binance, Kraken, and Coinbase as your crypto exchange solutions.

The content published on this website is not aimed to give any kind of financial, investment, trading, or any other form of advice. BitDegree.org does not endorse or suggest you to buy, sell or hold any kind of cryptocurrency. Before making financial investment decisions, do consult your financial advisor.

Scientific References

1. Antti I.: ‘Expected Returns on Stocks and Bonds’;

2. Samer B., Qais H., Khalil Y.: ‘Comparison Of Hardware and Digital Crypto Wallets’.