The price of Bitcoin recently dropped to under $7,000, which is a 10 percent plummet and the lowest point the cryptocurrency hit in two months. That’s a significant difference from the coin’s peak of $19,500 in December.
Ran Neu-Ner, founder and CEO of investment and advisory firm Onchain Capital, forecasted that the price will drop even lower but still recommends people invest if they’re willing to hold for several years.
One thing’s for sure — Bitcoin has been extremely volatile over the years. As such a new market, one could expect some instability. It also means, though, that its future is uncertain and investing is a significant risk.
Despite all of this, people keep investing. This indicates that they’re confident in the long-term prospects of Bitcoin. What’s inspiring this confidence?
The staying power of Bitcoin
Since Bitcoin’s beginning, people thought it was a fad or at least a niche market that would never go mainstream. Time and time again, it’s proven the doubters wrong but remains volatile to keep those doubts alive.
While not quite mainstream yet, Bitcoin has gained many more believers than it once had, as evidenced by the high number of investors. There are now more than 100 Bitcoin exchanges and more than 1,600 cryptocurrencies inspired by the original Bitcoin.
While there are still many doubters, proponents argue that the price of Bitcoin will rise over the long-term and even eventually become a mainstream way of making purchases. Venture capitalist and billionaire investor Tim Draper has predicted that Bitcoin will reach $250,000 in 2022.
Confidence in crypto
Part of the reason investors are confident in crypto is the technology that underpins it and the impact they expect it to have. Draper believes that crypto will become the primary currency within the next five to seven years.
One reason he cites is the security that Bitcoin provides. Exchanges get hacked, but the blockchain, the technology that enables cryptocurrencies to work, has not. Banks, he argues, face hacks and other cybersecurity issues all the time.
This underlying technology, the blockchain, is the main features that make cryptocurrencies unique and enables the elimination of the middleman.
The blockchain has uses outside of cryptocurrencies as well. It could aid in the management of the transfer of healthcare records, the monitoring of supply chains and tracing food from its origins to ensure compliance with health codes as well as many other uses.
Recognizing its importance
Major financial organizations and governments have not seen Bitcoin as legitimate for the majority of its existence. Now, however, they have started to recognize it.
Large Wall Street firms have started making investments that suggest they believe cryptocurrency will be around for the foreseeable future.
The Nasdaq has hinted that it may offer crypto trading, and the NYSE has done the same with bitcoin ETF trading. ICE, the parent company of NYSE, already provides a cryptocurrency data feed and is moving into bitcoin swaps.
Government officials have begun discussing crypto as well, which has sparked debates about the role that regulation should play. Many governments have not taken a supportive stance on Bitcoin, perhaps because it doesn’t require a central authority to function. Recently, though, several governments have changed their viewpoint to a more a sympathetic one.
Should you invest?
So, should you invest in Bitcoin? If you believe in it in the long term and are willing to wait a few years to see returns, proponents say it’s a good idea. If you want to make a quick buck, it’s better that you look elsewhere.
Most professionals also recommend not investing more than you can afford to lose. Don’t bank on it. Instead, use some extra cash and treat it more as a wild bet that may see big returns or nothing.
It’s also smart to diversify your holdings by investing in multiple projects. You should also make sure you understand the tax situation before you invest, as it can get rather complicated.
Then again, the Bitcoin market is so young and volatile, that the best practices of today might change tomorrow. Only time will truly tell what the future holds for Bitcoin.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions
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