Money Talks: Should I invest in bitcoin?
Greetings Bett!
I trust this email finds you well.
There has been a lot of buzz online about bitcoin. Investors were talking about it a lot last year [2020], and it caught my attention.
What do you think of Bitcoin? Would you advise someone to invest in it?
I am looking forward to hearing from you.
Sharon.
Thank you for your question, Sharon!
To consider bitcoin as a potential investment, you must first understand what it is, where it comes from and where it is going.
All that surrounds bitcoin is complex computing, but I will keep this as simple as I can.
Bitcoin is a cryptocurrency. According to Statista.com, there are about 4,000 cryptocurrencies out there. Plenty more are being created.
Bitcoin is the most widely traded of all these cryptos.
Cryptocurrency is digital money. Imagine M-pesa. You can pay for things, buy stuff, send money to people, et cetera, without ever touching notes and coins.
Bitcoin is a little bit like M-pesa, but there is no hard cash or physical asset to back it. There is no cryptocurrency agent out there where you will go with your phone and tell them, “I want to withdraw 10,000 bitcoin. Do you have float?”
Bitcoin has become a hot asset because folk out there are beginning to use it to pay for products and services (like money). Others are holding on to it for speculative purposes, to sell it off when its value goes up (like shares).
The value of a bitcoin is determined by the forces of the market – the demand and supply. The more people are trading it, the higher its value gets.
It is a very volatile asset: No one knows how many investors will be trading it next year or next week, so you can’t predict how its price will move.
It had a lot of buzz last year because its value had a meteoric rise and fall. Here is how:
July 8 2019. 1 btc = Sh1,264,085
July 8 2020. 1 btc = Sh1,009,334.52
July 8 2021. 1 btc = Sh3,563,430
Bitcoin is not regulated by any government, Central Bank or any other regulatory authority.
Let me put that in perspective. For example, here in Kenya, the Central Markets Authority (CMA) regulates our stock market, that’s the Nairobi Securities Exchange, NSE.
CMA is the Big Brother who looks over NSE and makes sure brokers are licensed, investment products are legit, trading rules are followed and all that jazz.
It makes sure that the folk in the NSE are on their best behaviour so that you as the investor can safely invest your money there. You also have someone to run to should the folk in their go rogue.
Nobody regulates bitcoin. It operates as the market dictates – out there in the jungle of the wide world of the web.
Bitcoin is traded on apps from your phone. Most investors are engaging brokers to do the trading for them.
The apps are such as Gemini, eToro, Robinhood and Cash App.
Now to the elusive question, Sharon, should you invest in bitcoin?
Only invest in bitcoin if:
1. Invest in bitcoin if you fully understand how it works.
What I have talked about here is the tip of the iceberg. You will need to do your extensive research and master the complexity of this asset class. As you do your research, you will stumble upon such terms as ‘blockchain’, ‘bitcoin mining’, ‘Ethereum’, ‘hot wallet’, ‘cold storage’ and whatnot.
These terms are intimidating, to be honest. But if you want to invest in bitcoin, you must comprehend its complexity and get comfortable with them.
It would help if you didn’t get a migraine when you see these terms. Or get that sinking feeling that you are sitting an exam that you haven’t studied enough for.
2. Invest in bitcoin if you have the money you can afford to lose.
As I mentioned, the bitcoin market is volatile and not regulated by any authority.
Invest knowing that in a couple of years, weeks, months – who knows? – you could make Sh1 million or lose Sh1 million.
And if you want to invest, don’t invest a small amount. Invest a substantial amount. An amount that will move the needle. I am looking at at least $1,000 (Sh100,000).
This money should not be money that takes care of your living expenses, savings and loans, or emergency fund.
Don’t tell your partner such things as, “I won’t make my bills this month because I bought bitcoin.”
If you are reading this and have invested in bitcoin, hit me up.
Please share your experience so we can all learn and grow together. BY DAILY NATION
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