Despite the general consensus that bitcoin had “fallen off”, so to speak, its price has unfathomably risen from £5,614 at the beginning of last year to above £40,000 at the end of last week. This revived belief in cryptocurrencies has taken over the internet, leaving the overarching question: is bitcoin a good investment?

You can easily trade bitcoin for both cash and assets (such as gold) very quickly due to its high liquidity, making it an effective investment vehicle, both for short-term profit and long-term investment.  Additionally, to many bitcoin epitomises the future of global banking: cryptocurrencies will eventually make banks redundant, as they will no longer be needed to store and transfer money. This has caused many to believe that bitcoins will become so valuable that they will replace so-called “paper money” as currency, leaving early-investors revelling in their gains.

Critics of bitcoin demonise it as dangerous and volatile. It is no secret that cryptocurrencies are at the very high-risk end of the investment spectrum, with MPs in 2018 labelling them as a ‘Wild West industry’. Fascinatingly, and perhaps shockingly, investing at the beginning of 2020, would have yielded an enormous 300% profit by the end of the year. However, if you’d invested at the start of 2018 and sold on New Year’s Eve, the collapse in Bitcoin’s price would have made you lose 73% of your money [1].  

For many investors around the world, this high-risk, high reward slogan is part of the allure. In other words, they must balance the prospect of making unimaginable returns and going bust. Regardless of your attitude to risk, as with any investment, it is vital that you do your due diligence (by researching intensively and understanding the market to a high level) and spread your money across multiple investments (not just bitcoin) to spread the risk.

 

References:

[1] https://www.thetimes.co.uk/money-mentor/article/invest-bitcoin-cryptocurrencies/