Bitcoin Investment… does this virtual financial tool brings profits?

Bitcoin is cryptocurrency payment system in decentralized format. It was publicly released in 2009.

Bitcoin gained its popularity started in 2013 and gained over 3x appreciation from 2011 to 2012. Venture capital firms and investors around the world continue to bet on this cryptocurrency. 

The simplest way to invest in Bitcoin is to outright buy some. Many established trading firms provide buying and selling services.

While you are start thinking to invest in Bitcoin, you might start asking how Bitcoin is valued. Bitcoin is measured against fiat currency, such as American Dollars (BTCUSD), Chinese Yuan (BTCCNY) or Euro (BTCEUR). It appears superficially similar to any symbol traded on foreign exchange markets.

The factors that generally determine Bitcoin’s price is supply and demand. Inspired by the rarity of gold, Bitcoin was designed to have a fixed supply of 21 million coins, over half of which have already been produced. Miners currently produce around 3600 bitcoins a day, some portion of which sold to cover electricity and other business expenses. The daily power cost of all mining is estimated to around $500K. Dividing the total by the current BTCUSD price provides an approximation of the minimum number of bitcoins which miners supply to markets daily.

Bitcoin supply is inflating at around 4% annually from mining activities. The rate will drop sharply  in 2020 when the next reward halving occurs. That Bitcoin’s price is rising despite such high inflation indicates extremely strong demand. Buyers absorb the thousands of coins offered by miners and other seller everyday.

Bitcoin wallet can be a lot safer than a bank account at times. Greece imposed strict capital controls in 2015, Greeks were subjected to a daily withdrawal limit of 60 EUR. Bitcoin demonstrated its value as money without central control. Soon after Greek crisis, China began to devalue the Yuan. Chinese savers turned to Bitcoin to protect their accumulated wealth.

It worths to note that Bitcoin is an experimental project, a highly risky asset. There are many negative influencers of price, ie. legislative risk of a major government banning or strictly regulating Bitcoin business. The emergence of a credible competitor, perhaps with the backing of major central banks could see Bitcoin loosing its market share in the future.

well, Bitcoin is ultimately worth what people will buy and sell it for. This is often as much a matter of human psychology as economic calculation. Don’t allow your emotions to dictate your actions in the market; this is best achieved by determining a strategy and sticking to it.

If your aim is to accumulate Bitcoin, a good method is to set aside a fixed, affordable sum every month to buy bitcoins, no matter the price. Over time, this strategy (known as Dollar-cost averaging), will allow you to accumulate bitcoins at a decent average price without the stress of trying to predict the sometimes wild gyrations of Bitcoin’s price.