Bitcoin for the non-savvy investor

Many investors may be seeing the rise of bitcoin for the first time. However, they have no idea if it is a scam or if it is a legitimate investment. What should they do?

A lot of investors are stuck within a monetary system that is not treating them well. Their ‘money’ in the bank is losing purchasing power with every passing year. Inflation is also eating into their wealth as prices keep rising. They know there is a problem, but don’t know what to do to protect their dwindling wealth.

Crypto bad?

Some are becoming aware of the rising star that is bitcoin. It started the year in 2023 at $15,000 or so. Now, as we are entering 2024 the price is over $45,000, and climbing. A 3x on your money if only you bought some when it was at the bottom.

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But hey, this is crypto isn’t it? Aren’t we all told by the mainstream media that crypto is bad? Crypto is a ponzi scheme that sucks in new investors, parting them with their money, which can be laundered and subsequently used by drug barons or terrorists.

A thriving new asset class

Crypto is a new asset class, and given the complete failure of regulators to do their job in regulating it, many of the cryptocurrencies have been scams, and many more just haven’t lived up to their original ideals.

However, saying that it is all one giant ponzi scheme is doing an injustice to the thousands of developers and entrepreneurs, who are among the best minds on the planet, and who inhabit this space, with the main goal of creating an alternative system to the outrageously unequal and malfeasant monetary system which is our lot currently.

Anyway, what can be invested into that carries the least amount of risk to the investor? Yes, certain cryptocurrencies have been known to make ridiculous gains, but only for those who bought and sold at the right time. Generally, markets take the money of around 95% of investors, so the chances are very good that you would be one of these.

Bitcoin the safest bet

Therefore, probably the safest investment to make would be into the flagship of the cryptocurrencies, and that is bitcoin. It currently makes up around 52% of the entire crypto market, has deep liquidity and has the strongest and most secure decentralised network in the world.

Source: Freepik

That being said, if you are looking for gains, even holding bitcoin can be problematic depending on when you buy it. Bitcoin’s history, short as it is, shows that it has a cyclical nature. From a long and quite painful bear market that can see corrections of 70 to 80%, bitcoin rises into quite spectacular bull markets that have seen remarkable gains, the size of which haven’t been equaled by any asset class in history. 

Be that as it may, if you invest at the top of the market you are likely to experience a one to two year bear market within which many investors are likely to be shaken out, selling their positions at a loss.

A long time horizon

So, as an inexperienced investor, what could you do?

For many, the main problem is the expected time frame for returns. Therefore, it might be argued that it is best to have a very long time horizon, and this could be as much as ten years or beyond. This takes the volatility of bitcoin out of the equation, and allows the investor to just sit back and get on with their life.

Bitcoin goes up more than it goes down over the longer time frame, and history bears this out. It has a known and scarce supply, which is completely unique in the world of monetary assets. More cannot be printed at the whim of government and so investors cannot have the rug pulled out from under them.

Purchasing power is dwindling fast

According to Calculator.net, $10,000 in November of 2023 was worth $13,174 ten years ago in November of 2013, if an average inflation rate of 2.8% is taken into account. This equates to around a 30% loss in purchasing power over the ten years.

In view of this, it is imperative that investors do the homework. It’s no good taking advice from this person or that person. Even financial advisors have an axe to grind, and most are firmly embedded in the traditional financial system and the kickbacks therein, and would be very unlikely to countenance advising a purchase of bitcoin.

Looking into how ‘money’ comes into existence, the origins and performance of the central banks, and how bitcoin might be perceived to be a flight to safety, are definitely topics that time would be well spent on. There is no better time to start this than now. Your financial future probably depends on it.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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