It is necessary to take into account some considerations before getting involved in the world of cryptocurrencies. The information that experts provide can help to get the most out of the pioneering cryptocurrency.
Many people wonder whether investing in the main cryptocurrency on the market is a good decision. They have heard that some love to say when they bought (or mined) Bitcoin for the first time. Besides, value investors say that they regard it as “artificial gold”, as in the case of Charlie Munger, vice president of Berkshire Hathaway. He believes that Bitcoin is nothing, but “total insanity”.
Despite the diverse opinions about Bitcoin, the people who want to invest in this crypto asset must take into account some considerations. To get the most out of the pioneering cryptocurrency, potential investors should do their research. The following information may help to make a more accurate decision.
Issuance Limit of 21 Million Coins
The strict limit of 21 million units justifies the price that Bitcoin has reached. However, this is not the only crypto asset with limits, since Litecoin also has a cap (of 84 million). The price of this altcoin is not even close to 25% of the price of Bitcoin, which has already exceeded USD 40,000. The price of Litecoin is below USD 165, quite far from that of the first cryptocurrency.
Entry of Institutional Investors to Bitcoin
Bitcoin’s current price has led more institutional investors to buy it. For example, Michael Saylor, founder, and CEO of MicroStrategy bet the future of his company on Bitcoin. They even borrowed USD 650 million to get more involved in the cryptocurrency.
It should come as no surprise that MicroStrategy, Grayscale, Ruffer, and CoinShares, among other institutional investors, are moving towards Bitcoin. After all, they have made the price of Bitcoin increase, and everyone expects it to remain bullish in the long term.
“Network Effect” on Bitcoin’s Price
Some experts consider that the network effect seems to be driving the pioneering cryptocurrency higher. The growth in the number of investors has turned Bitcoin into a more valuable asset. That could explain why the price of other cryptocurrencies like Litecoin has not had such significant increases.
The network effect indicates that the usefulness of a cryptocurrency grows as more people adopt and use it. Certainly, the increase in the number of people and institutions buying Bitcoin causes its price to go up. However, the definition of the network effect does not apply to that case but to the use of a social media platform.
Handling Management
Those who want to buy Bitcoin must ask themselves whether they can handle volatility. For example, they should consider whether they can keep Bitcoin even if it falls by 50%. They should know the answer to that question regardless of the investment, especially in the case of the pioneering cryptocurrency.
They must also take into account what volatility says about Bitcoin as an asset. Even though they may expect some volatility with any liquid asset, Bitcoin goes to the extreme in this regard. It has had falls of up to 17% below USD 30,000 but has reached more than USD 40,000.
To conclude, future investors should be aware of Bitcoin’s ability to rebound from the worst all-time lows. The main cryptocurrency on the market has exceeded its previous all-time highs on more than one occasion. This leads to say that Bitcoin is still the best investment option in the cryptocurrency ecosystem.
By Alexander Salazar
