Bitcoin has seen incredible growth and volatility since its creation in 2009. Once essentially worthless, it rose to nearly $20,000 per bitcoin in 2017 before crashing dramatically. It currently trades around $3,500. Many wonder if now is the right time to invest in bitcoin or if its best days are behind it. In this article, we’ll analyze the current state of bitcoin and the cryptocurrency market to help you decide.
Current Price and Market Trends
- Bitcoin is currently trading around $3,500 per bitcoin, down from December 2017 highs of nearly $20,000 but up significantly from lows below $3,000 in 2018
- Other major cryptocurrencies like Ethereum and XRP have followed similar price trends as bitcoin, rising and falling in bubbles over the past few years
- Cryptocurrency market caps now hover around $120 billion, down from highs above $800 billion in early 2018
Recent Price Drivers
Several factors have impacted bitcoin’s price in recent months:
- Increased regulatory scrutiny – Governments are developing cryptocurrency regulations which bring more oversight but also more legitimacy to the space
- Security breaches – Hackers have targeted cryptocurrency exchanges and users, causing large bitcoin sell-offs
- Bitcoin ETF delay – Decision by SEC to delay approval of a bitcoin ETF until 2019 lowered investor optimism
- Forks and infighting – Bitcoin forks and fights over how to scale the bitcoin network have created uncertainty
Is Bitcoin a Good Investment in 2019?
Whether bitcoin makes for a good investment depends on your risk tolerance and belief in the longevity of bitcoin and blockchain technology.
Potential Advantages
- Bitcoin enables borderless, decentralized transactions and may have much more room for adoption and growth
- Some see it as “digital gold” and a hedge against instability and inflation in fiat currencies
- Owners can store bitcoin offline in “cold storage” away from hackers and governments
- If it becomes a widely-accepted form of payment, the price per bitcoin could substantially increase
Potential Disadvantages
- Bitcoin is highly speculative – most people buy it as an investment, not to use as a currency
- It could lose most or all of its value if enthusiasm for cryptocurrency declines or better coins/technology emerge
- Regulatory agencies could restrict its use, limiting adoption and lowering prices substantially
- Major hacks, fraud, or technical issues with the bitcoin network could lead to dramatic price crashes
Factors That Could Influence Bitcoin’s Price
Bitcoin’s future trajectory depends on a variety of factors. Here are some potential catalysts that could impact its price:
Greater Adoption by Businesses and Consumers
- If major retailers like Amazon accept bitcoin directly, it could gain traction as a payment method
- Adoption by developing nations with unstable currencies could propel growth
Institutional Investment
- Entry of major investment banks, hedge funds, pensions could spur demand
- Launch of additional bitcoin futures exchanges and ETFs would make it easier to invest
Favorable Regulations
- Governments could legalize bitcoin, bringing more users into the ecosystem
- However, restrictive regulations could also limit bitcoin’s advance
Improved Scalability
- Upgrades like SegWit and Lightning allow more transactions per second
- This makes bitcoin more useful as a payment system and could boost prices
Security Breaches and Fraud
- High profile hacks and scams like Mt Gox could undermine faith in bitcoin
- Hard forks over how to handle incidents also fragment user base
Competition from Other Cryptocurrencies
- Better-designed cryptocurrencies could displace bitcoin as the market leader
- However, bitcoin enjoys the first-to-market advantage
Where Could Bitcoin Be in 5 Years?
Predicting bitcoin’s price in the short-term is difficult given high volatility. However, here are possible scenarios for where it could be in 5 years:
Bearish Scenario
- Bitcoin fails to gain widespread traction and suffers reputational damage from hacks or fraud
- Major governments ban bitcoin or restrict its use
- A superior cryptocurrency displaces bitcoin
- Price in 5 years: Below $1,000
Moderate Scenario
- Bitcoin maintains its market leadership position but does not gain significant user adoption
- Governments impose some restrictions but do not outright ban cryptocurrencies
- Price in 5 years: $5,000 – $10,000
Bullish Scenario
- Bitcoin experiences mass adoption and becomes a widely accepted payment method
- Investors flock to bitcoin as digital gold while inflation erodes fiat currency values
- Only 21 million bitcoins will ever exist, supply scarcity drives prices higher
- Price in 5 years: $30,000+
Should You Buy Bitcoin Today?
Here are some tips on deciding whether to buy bitcoin today:
- Only invest what you can afford to lose. Bitcoin remains risky
- Consider dollar cost averaging to spread out your purchases over time
- Bitcoin may continue to be volatile in the short-term, prepare for ups and downs
- Use trusted cryptocurrency exchanges with robust security measures
- Store most of your bitcoin offline in a hardware wallet to reduce hacking risk
- Stay up to date on bitcoin news and regulations affecting it
Bitcoin shows promise but also has significant risks. It could be worth considering allocating a small portion of your investment portfolio to bitcoin, but beware of putting too much of your money into this nascent asset.
Conclusion
Bitcoin has charted an incredible rise from obscurity to mainstream prominence and massive value appreciation. However, purchasing bitcoin is still a risky investment given its price swings and regulatory uncertainty. Those interested should carefully consider bitcoin’s risks and potential benefits before buying. With prudent management of risks, judicious investment and an optimistic view on bitcoin’s long-term prospects, investing today could potentially yield large returns in the future. However, bitcoin buyers should be prepared for the possibility of dramatic declines in price as well. By bringing disciplined investing and a long-term perspective, you can make more informed decisions about if and how to invest in bitcoin.