Between February and August 2017, the price of Bitcoin jumped from US$984 to US$2,731. That’s almost triple the original value. Over 6 months! A person who invested R1,000 in Bitcoin in September 2015 would have more than 17 times their money back by mid-August 2017. Now the dangers of investing in Bitcoin have already been covered in Beware Bitcoin. The concerns raised in that article should not be underestimated. Having said that, the aim is to present a balanced view so this article focuses on the potential returns you could get from Bitcoin.
There are 4 ways you could get involved in Bitcoin:
To put it simply, investing is the act of buying something and holding onto it while its value (hopefully) increases. In terms of Bitcoin – this would involve buying a number of Bitcoins and holding onto them in the hope that their price would increase over time. A person who bought Bitcoins in 2012 and is still holding onto them now could be classified as an investor.
Trading is very distinct from investing in that traders do not buy and hold onto assets for long periods of time. Traders aim to buy when the price is low and sell when the price is high in the hope of making profits over short periods of time. Trading Bitcoin would thus be very similar to trading any other 2 currencies such as the Pula and the US dollar. Depending on how you trade, it is possible to make losses while the price of Bitcoin goes up. Trading, therefore, requires a lot of knowledge about factors that influence the value of Bitcoin.
Another way of getting involved in Bitcoin is simply through buying and selling. You could buy Bitcoins and hold them just like any other currency in your bank account. A number of companies now accept Bitcoin as a form of payment.
The primary way of getting Bitcoins is through mining them. Mining in this sense should not be confused with the traditional way of mining. Bitcoin miners use powerful and expensive computer systems to secure the Bitcoin network and process Bitcoin transactions. These miners are issued with new Bitcoins as a reward. The article addressing where the value of money comes from pointed out that governments issue money – usually through their Reserve banks. In the Bitcoin world, new Bitcoins are issued to miners as a reward for their work. The Bitcoin mining process is competitive and requires powerful systems and so may be out of reach for ordinary individuals.
Again we have to stress that huge losses could be made in the world of Bitcoin. Investment decisions should not be driven by greed or envy of what others have gotten. Careful consideration of your own personal circumstances and risk appetite is essential before deciding to get involved.