These past few months, Bitcoin has recently made headlines after reaching almost $20,000 for a single coin. News sites everywhere are reporting on that “it’s a good time to invest” or that “the price is about to drop.”
However, before considering when is the best time to stock up on Bitcoin, you must first consider whether or not it is a worthwhile investment in the first place. Cryptocurrencies rely on computer algorithms to track and validate transactions, allowing them to be completely decentralized. However, it is still a relatively new technology, especially compared to traditional currency, which has been around for hundreds of years. And with the existence of reliable currencies like the US dollar, why would you want to invest in Bitcoin? The answer is that Bitcoin and many other rising cryptocurrencies have a few key advantages.
First, the currency is not tied to any central government or organization. For those in countries with unstable governments, Bitcoin could provide a safer way to store money. With apps such as Coinbase, companies make cryptocurrencies much more accessible to the public. And Bitcoin isn’t the only cryptocurrency the apps work with; most will deal with Ethereum and Litecoin as well.
However, there are also several downsides to the rise of cryptocurrencies that must be considered. Bitcoin mining, the process used to verify transactions, requires a computer to make many calculations. These calculations are highly intensive and use a lot of energy. As the popularity of Bitcoin continues to increase, the number of people mining also increases, causing a large spike in energy usage. According to the Associated Press, it is predicted that Iceland will soon use more energy mining Bitcoins than it will powering homes.
Additionally, the value of Bitcoin is highly volatile. For the first few years after it was created, it was worth less than a dollar. However, the price has rapidly increased, from around $1,200 per unit a year ago, peaking at around $20,000 and now hovering around $12,000. Even in the short term, the price is incredibly volatile and now seems to be on a downward trend. It can fluctuate several hundred dollars within a few days, making it very hard for even top tier economists to make predictions about it.
So while you may make a quick buck—or several thousand—from Bitcoin, investing in the cryptocurrency is better compared to gambling: you could win big but you’re more likely to lose.