Is Bitcoin a Good Investment for Your Portfolio?
Posted on May 30, 2017 by Miranda Marquit

In recent years, there has been excitement around the cryptocurrency Bitcoin.

In fact, the price of Bitcoin is above $2,000.

For those of you keeping score, that price is higher than gold right now.

So, does that mean Bitcoin is a good investment? Should you rush out to get your hands on this cryptocurrency? Maybe not.

What is Bitcoin?

Bitcoin is a virtual currency. It was created by computer processing power, and it can be exchanged instantly. It’s used as a digital currency by thousands of people around the world.

You can exchange a Bitcoin for goods or services. Or, if you can find someone to buy a Bitcoin from you, it’s possible to make use of an exchange and receive more traditional money for it.

Speculators are cashing in on Bitcoin right now, thanks to its meteoric rise in price over the last couple of years.

Speculation and Bitcoin

Right now, investing in Bitcoin in the hopes of striking it rich is very much an exercise in speculation.

Recently, Bitcoin lost $4 billion in value as the price dropped 19%. However, there are plenty of Bitcoin bulls who see a recovery — and even higher prices in the future.

Part of the reason that some are so bullish on Bitcoin has to do with the fact that, supposedly, there will only be a limited number “mined” through computer processing power. That limited supply means that, at some point, there will be no more bitcoins. It makes it hard to lose value due to a flooded market.

Plus, it’s becoming more commonplace as a medium of exchange, so more people are using it.

However, at the same time, Bitcoin is already priced above $2,000. Before you decide to invest that kind of money in any asset, it’s important to consider whether or not you think the price can go much higher.

One of the problems with investing is that it’s so tempting to get in on the action when everyone is bullish and prices are already high. But the upside could be limited — and that means all that’s left is down.

While there could still be upside to Bitcoin, despite the recent correction, it’s a good idea to be cautious.

Bitcoin as Medium of Exchange

Don’t forget that Bitcoin is also a medium of exchange. There is a whole world of independent-minded entrepreneurs looking to get away from government-controlled currencies. They are also looking to avoid the costs that come with currency exchange rates and traditional payment processors.

Bitcoin transactions can be settled almost instantaneously, and at a fraction of the cost associated with other online payment methods.

However, as Bitcoin becomes popular in the mainstream for investment/speculation, it becomes harder to use it as a medium of exchange.

Plus, it’s so expensive that it makes it unwieldy. It’s no surprise, then, that alternative cryptocurrencies are starting to become popular. These cryptocurrencies also have exchanges. It’s possible to use them to buy and sell goods and services.

On top of that, these alternatives to Bitcoin can be interesting choices for speculation, if you have the extra resources. Many investors see silver as a good alternative to gold if you don’t want to pay the cost associated with gold. A similar thought process is also developing around other cryptocurrencies as Bitcoin’s price continues to rise and many investors feel like it’s a bit overpriced — or just too expensive for them to afford.

Other Uses for Blockchain

The technology that underpins Bitcoin is known as blockchain. Interestingly, there are other uses for this technology, and with the right vision and a little creativity, you might be able to find other investment opportunities.

Blockchain technology is being tested by banks for payment settlement (for traditional currencies and transactions). On top of that, development related to smart contracts, supply chain management, and identity verification is under way. It’s possible to look into companies developing and patenting blockchain applications

It’s possible to look into companies developing and patenting blockchain applications and consider whether or not they make solid investment choices for the future. You might be surprised at what you can find when you start looking around.

Right now, the fate of Bitcoin and other cryptocurrencies is uncertain. However, as with all investment or speculation, with the right approach, it’s possible to make some money.

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Written by Miranda Marquit

Miranda is a financial journalist. She specializes in writing about beginning investing, long-term financial planning, and how to get your money to work for you -- allowing you to enjoy your preferred lifestyle.

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