Bitcoin’s Recent Rise
Bitcoin is an exciting investment opportunity. Its all-time high was hit on January 8th, where the exchange rate was 1 bitcoin for $51,121.46 CAD. Due to the pandemic, many people have gotten into stocks and are moving on to more lucrative and more risky ways of making money.
What is Bitcoin?
This issue with Bitcoin is that many do not fully understand what it is. My grandfather thought he should get into the Bitcoin game when it peaked on January 8th. Being an old-timer, I told him that the risks are too high to invest — not to mention he has difficulties using his phone, nonetheless understanding how a crypto-currency works.
First of all, Bitcoin is not stock! It’s a currency, but except for having cash in your wallet, how much Bitcoin you own and your transactions are all kept virtually. You can purchase products on certain websites that support Bitcoin purchases. Paypal also has Bitcoin support.
It’s important to know that the price of Bitcoin is tied to its demand. The price goes up when demand is high, and it goes down with a decrease in demand. Like real-world currency, Bitcoin too faces inflation due to the creation of new Bitcoins.
How can I get Bitcoin?
Bitcoin can be bought and sold on Paypal, Robinhood or on Bitcoin.org. If you have a decent computer, you can ‘mine’ Bitcoin. You can ‘mine’ by using your computer’s processing power to work on Bitcoin transactions and other Bitcoin-related processes. In doing so, you receive compensation pay in the form of Bitcoin; rates vary. If you decide to start mining Bitcoin, make sure the worth of the Bitcoin per hour is more than the cost of electricity unless you’d be losing money!
Why the Recent Gain?
As stated before, the pandemic has increased interest in Bitcoin. These newcomers to investing are looking at unconventional ways of making a profit. The relative newness to Bitcoin, general hype around it, and high reward potential make it an attractive purchase.
As Bitcoin increases in price, more and more people hear about it. This brings more interest in Bitcoin, which increases demand. The increased demand increases the price, which makes more people hear about it. A snowball effect of price increases occurs.
Memories of the 2017 rise of Bitcoin to $25,271.48 makes people regretful that they did not invest early when the price of Bitcoin was low. This drove more people to buy Bitcoin before they lose out once again.
Crypto-Currency Risks
Crypto-currencies are decentralized and not backed by governments. What makes the Canadian dollar valuable is that the government backs the currency. We can have faith that the currency would not collapse overnight due to the Canadian government’s monetary policy.
However, Bitcoin has no regulatory checks, and in the past, it could be a matter of days until you lose 90% of your money. Since January 8th, Bitcoin slumped to $41,778.99 (2021–01–12, 8:21pm), a 19% decrease. For conservative investors, this is a worrisome gamble.
Moreover, governments can become hostile to Bitcoin. If crypto becomes more popular than the Canadian dollar for transactions, faith and trust in the CAD can dwindle. Government authority over people’s lives is also at stake. If the government loses currency control, where else can power be lost?
Due to Bitcoin copy-cats, the crypto market is getting saturated with the currency that does not have the necessary demand for currency upkeep. People looking for the new crypto success story are trying to enter that currency’s market early. The small price of the currency can lead to large amounts of money from one person determining the price currency’s price. Bitcoin itself notes this same issue.
Scammers are also a threat for those unaware of what currency is legitimate online. Bitcoin, Etherum and Litecoin are established crypto-currencies; beware of something too good to be true. Alas, when dealing with virtual currencies, potential hacking can either rob people of their held Bitcoin or create new Bitcoin.
If you are looking into buying Bitcoin, be careful of the risks, but the recent rise in price shows massive profit potential. Yet, with the volatile history of Bitcoin, a crash is imminent.
