Advantages of Bitcoin Investments
The overwhelming performance of bitcoin — as a currency and investment — has attracted traditional and institutional investors alike.
A number of companies have started to consider the idea of holding Bitcoin on their balance sheets for a variety of reasons.
Some have cited inflation as their reason. Others have found it to be an asset that remains liquid while also generating a return. And some just want to support Bitcoin and its ability to give economic empowerment to individuals.
The list of companies adopting Bitcoin as a reserve asset has grown in the last year.
Companies have made this decision due to inflation and low interest rates, making cash held on balance sheets lose value over time.
Some of the larger companies that hold Bitcoin include Tesla (TSLA) and Square (SQ).
Perhaps the biggest Bitcoin buyer of them all is MicroStrategy and its CEO, Michael Saylor. Saylor has been extremely vocal about Bitcoin on his Twitter account. The business intelligence company even has a whole section of its website dedicated to Bitcoin.
In early August of 2020, MicroStrategy purchased its first Bitcoin for $250 million. Since then, the company has continued to acquire more and more of the digital asset in varying quantities.
“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders,” said Michael J. Saylor, CEO, MicroStrategy Incorporated. “This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.”
Most recently, MicroStrategy announced that it would offer $400 million worth of senior notes to purchase more Bitcoin and that it would also form “MacroStrategy” as a subsidiary that would hold the company’s crypto.
In late December of 2020, Tesla (TSLA) announced that it had updated its investment policy to provide the company with more flexibility and diversity, allowing them to invest in digital assets like Bitcoin.
After its policy change, the company invested $1.5 billion into Bitcoin and said it might acquire more and hold the asset from time to time or even long-term. Elon Musk has also been highly vocal and positive about cryptocurrencies on his Twitter account.
Tesla’s Q1 2021 earnings report revealed that the company had actually sold 10% of its Bitcoin holdings, creating a stir on social media with some saying the company helped to pump Bitcoin only to sell some. In May of this year Elon musk twitted that Tesla would start accepting Bitcoin for car purchases which created a buy rally for bitcoin. It moved to an all-time high of about US $64,000 per bitcoin. Later he later twitted that the company would stop accepting bitcoin due to environmental concerns – bitcoin mining consumes a lot of power which sent to the price crushing to below $40k. In late June bitcoin went even below US$ 30,000. He then twitted that Tesla would start accepting bitcoins as payment for Tesla products. Note that since Tesla holds bitcoin in its balance sheet anytime bitcoin declines so does the value of Tesla which could be part reason why Elon Musk has changed his mind.
While Tesla did sell some of its Bitcoin, its reasoning for the move looks to have been as a test of the cryptocurrency’s liquidity. The company still holds over 43,000 Bitcoin.
Elon Musk has recently confirmed that SpaceX also holds Bitcoin and that as Bitcoin mining becomes greener Tesla will likely begin accepting Bitcoin as payment again.
In October of 2020, Square (SQ) announced that it would purchase $50 million worth of Bitcoin worth approximately 4,709 Bitcoins at the time of purchase. This means that the price spent per Bitcoin was just over $10,600 when they made the investment in October. Square later purchased an additional 3,318 Bitcoin in February 2021.
Square has been involved in the cryptocurrency space since 2018 when it began allowing users of CashApp to buy, sell and hold Bitcoin and other cryptos. Square’s founder and also the creator of Twitter, Jack Dorsey, is also a known Bitcoiner. Dorsey made a move to create Square Crypto, an independent team that contributes to Bitcoin’s open-source code to further the protocol.
Square furthered its commitment to Bitcoin by creating the Cryptocurrency Open Patent Alliance, a non-profit that seeks to push crypto innovation and help to maintain open access to crypto-related inventions and software.
The announcement said that the company believes Bitcoin to be a tool of individual empowerment that can benefit the greater good.
“We view bitcoin as an instrument of global economic empowerment; it is a way for individuals around the world to participate in a global monetary system and secure their own financial future. This investment is an important step in furthering our mission.”
Marathon Digital Holdings
Marathon Digital Holdings (MARA) is a Bitcoin mining company. Over time the company has slowly amassed a portfolio of over 5,000 Bitcoin. The company’s site says that it aims to build the largest mining operation in North America at one of the lowest energy costs.
According to its website, the company produces just over 55 Bitcoin a day with its over 103,000 miners and makes up 6.2% of Bitcoin’s global hash rate. The cost of running its operation is nearly $5,000 a day.
The company also bought $150 million worth of Bitcoin in January to better its long-term investment strategy.
“We…believe that holding part of our treasury reserves in bitcoin will be a better long-term strategy than holding US dollars, similar to other forward-thinking companies like Microstrategy,” said Marathon’s CEO, Merrick Okamoto.
One of the largest cryptocurrency exchanges in the world and the first to go public in the United States, Coinbase (COIN) represents a new level of maturity for the asset class and its surrounding industry.
Coinbase’s public listing occurred on April 14th of this year. In the process of becoming public, the company’s cryptocurrency holdings were made public. Coinbase currently holds 4,487 Bitcoin, which confused many, as it is the most prominent crypto exchange in the US, yet it holds less than non-crypto-related companies on this list.
The Coinbase website boasts 56 million verified users, $335 million in quarterly trade volume and $223 billion of assets on the platform. The company has made no public statements on whether they will continue to hold Bitcoin or buy more in the future.
Bitcoin as an investment tool provides you with the following advantages over traditional investments.
Bitcoin is arguably one of the most liquid investment assets due to the worldwide establishment of trading platforms, exchanges and online brokerages. You can easily trade bitcoin for cash or assets like gold instantly with incredibly low fees. The high liquidity associated with bitcoin makes it a great investment vessel if you’re looking for short-term profit. Digital currencies may also be a long-term investment due to their high market demand.
Lower inflation risk. Unlike world currencies — which are regulated by their governments — bitcoin is immune to inflation. The blockchain system is infinite and there’s no need to worry about your cryptos losing their value.
New opportunities. Bitcoin and cryptocurrency trading is relatively young — new coins are becoming mainstream on a daily basis. This newness brings unpredictable swings in price and volatility, which may create opportunities for massive gains.
Minimalistic trading. Stock trading requires you to hold a certificate or license. You must also go through a broker to trade a company’s shares. But bitcoin trading is minimalistic: simply buy or sell bitcoin from exchanges and place them in your wallet. Bitcoin transactions are also instant — unlike the settlement of stock trading orders, which could take days or weeks.
Disadvantages of Bitcoin Investments
Bitcoin may be the future of monetary exchange, but it is equally important that you are aware of the concerns surrounding cryptocurrency investing. Here are some serious risks associated with bitcoin investments.
Volatility. The price of bitcoin is always rippling back and forth. If you happened to buy bitcoin on December 17, 2017, the price was $20,000. Weeks later, you couldn’t sell your investment for more than $7,051. While you’d be doing great now in 2021, holding for years at a time is not a viable option for all investors.
Threat of online hacking. While using a trusted exchange like Coinbase or Gemini will do wonders to lower your risk of being hacked, the only way you can be totally secure is by taking custody of your own private key. This can be done with a crypto wallet like the Ledger Nano X or Coinbase Wallet.
Can Bitcoin be Exchanged for Real Money?
Bitcoin can be converted to cash in a couple of different ways. You can sell bitcoin on a cryptocurrency exchange like Coinbase or Gemini. The cash will be deposited directly into your bank account.
Bitcoin ATMs are expensive, but if there is 1 near you, you can exchange your bitcoin for cash. And some websites allow you to sell bitcoin for a prepaid debit card.
The most common cryptocurrencies
- Bitcoin (BTC)
Market cap: Over $641 billion
Created in 2009 by someone under the pseudonym Satoshi Nakamoto, Bitcoin (BTC) is the original cryptocurrency. As with most cryptocurrencies, BTC runs on a blockchain, or a ledger logging transactions distributed across a network of thousands of computers. Because additions to the distributed ledgers must be verified by solving a cryptographic puzzle, a process called proof of work, Bitcoin is kept secure and safe from fraudsters.
Bitcoin’s price has skyrocketed as it’s become a household name. Five years ago, you could buy a Bitcoin for about $500. As of June 2021, a single Bitcoin’s price was over $32,000. That’s growth of about 6,300%.
- Ethereum (ETH)
Market cap: Over $307 billion
Both a cryptocurrency and a blockchain platform, Ethereum is a favorite of program developers because of its potential applications, like so-called smart contracts that automatically execute when conditions are met and non-fungible tokens (NFTs).
Ethereum has also experienced tremendous growth. In just five years, its price went from about $11 to over $2,500, increasingly roughly more than 22,000%.
- Tether (USDT)
Market cap: Over $62 billion
Unlike some other forms of cryptocurrency, Tether is a stable coin, meaning it’s backed by fiat currencies like U.S. dollars and the Euro and hypothetically keeps a value equal to one of those denominations. In theory, this means Tether’s value is supposed to be more consistent than other cryptocurrencies, and it’s favored by investors who are wary of the extreme volatility of other coins.
- Binance Coin (BNB)
Market cap: Over $56 billion
The Binance Coin is a form of cryptocurrency that you can use to trade and pay fees on Binance, one of the largest crypto exchanges in the world.
Since its launch in 2017, Binance Coin has expanded past merely facilitating trades on Binance’s exchange platform. Now, it can be used for trading, payment processing or even booking travel arrangements. It can also be traded or exchanged for other forms of cryptocurrency, such as Ethereum or Bitcoin.
Its price in 2017 was just $0.10; by June 2021, it had risen to over $350, a gain of almost 350,000%.
- Cardano (ADA)
Market cap: Over $51 billion
Somewhat later to the crypto scene, Cardano is notable for its early embrace of proof-of-stake validation. This method expedites transaction time and decreases energy usage and environmental impact by removing the competitive, problem-solving aspect of transaction verification present in platforms like Bitcoin. Cardano also works like Ethereum to enable smart contracts and decentralized applications, which are powered by ADA, its native coin.
Cardano’s ADA token has had relatively modest growth compared to other major crypto coins. In 2017, ADA’s price was $0.02. As of June 2021, its price was at $1.50. This is an increase of 7,400%.
- Dogecoin (DOGE)
Market cap: Over $44 billion
Dogecoin has been a hot topic thanks to celebrities and billionaires like Elon Musk. Famously started as a joke in 2013, Dogecoin rapidly became a prominent cryptocurrency option, thanks to a dedicated community and creative memes. Unlike many other cryptos, such as Bitcoin, there is no limit on the number of Dogecoins that can be created, which leaves the currency susceptible to devaluation as supply increases.
Dogecoin’s price in 2017 was $0.0002. By June 2021, its price was at $0.32—a 159,900% increase.
- XRP (XRP)
Market cap: Over $40 billion
Created by some of the same founders as Ripple, a digital technology and payment processing company, XRP can be used on that network to facilitate exchanges of different currency types, including fiat currencies and other major cryptocurrencies.
At the beginning of 2017, the price of XRP was $0.006. As of June 2021, its price reached $0.92, equal to a rise of 15,233%.
- USD Coin (USDC)
Market cap: Over $23 billion
Like Tether, USD Coin (USDC) is a stablecoin, meaning it’s backed by U.S. dollars and aims for a 1 USD to 1 USDC ratio. USDC is powered by Ethereum, and you can use USD Coin to complete global transactions.
- Polkadot (DOT)
Market cap: Over $21 billion
Cryptocurrencies may use any number of blockchains; Polkadot (and its namesake crypto) aims to integrate them by creating a cryptocurrency network that connects the various blockchains so they can work together. This integration may change how cryptocurrencies are managed and has spurred impressive growth since Polkadot’s launch in 2020. Between September 2020 and June 2021, its price grew 615%, from $2.93 to $20.95.
- Uniswap (UNI)
Market cap: Over $13 billion
Uniswap is an Ethereum-based token that powers Uniswap, a decentralized crypto exchange that uses an automated liquidity model for trading. This means there is no central facilitator, like a bank or broker-dealer. Instead, it’s powered by smart contracts and pooled user resources. Uniswap’s platform is open source, so anyone can use the code to create their own exchanges.
Launched in 2020, Uniswap’s price started at $0.48. By June 2021, its price was $24.60, a gain of 5,025%.