Should you invest in bitcoin?

Cryptocurrencies are making all the headlines right now, with some analysts predicting that Bitcoin will reach $100,000 in 2022.

What is Bitcoin and how does it work?

The concept of digital money that you use online is not complicated in itself. After all, most of us will be familiar with transferring money from one online bank account to another

Bitcoin is a digital asset that functions like a regular currency with notable differences. Cryptocurrencies are peer-to-peer payment methods, without the banks having to break with every transaction. There is no physical copy of the coins either.

Each bitcoin is generated (or mined) using an encrypted token, which is a string of numbers and letters. The same equation used to generate the code is that it can be "unlocked" (like a virtual key).

Other important points about Bitcoin:

• Cryptocurrencies, such as Bitcoin, Ethereum and Cardano, are a form of payment that uses blockchain technology to send data in cyberspace.
• Every bitcoin must be mined
• It's limited: only 21 million bitcoins can be mined in total
• Cryptocurrencies are “decentralized” in the sense that they are not regulated by a financial authority, such as the government or central banks
• Most platforms will allow you to buy bitcoin using credit cards

Why did bitcoin drop?

The price of Bitcoin and many other leading digital currencies suffered massive drops at the beginning of December 2021, and prices have struggled in 2022 so far.

Bitcoin is currently worth about $46,800, according to data from Coinbase. This is a long way from the all-time high of $69,000 recorded in (November).

The recent turmoil comes on the heels of uncertainty over the latest variant of the coronavirus and high inflation in the US and UK, as well as threats of further regulation of crypto investments going forward.

Should you invest in bitcoin?

Bitcoin is very volatile, but if you are willing to take risks, first make sure you understand what you are investing in and have an investment strategy.

There are a number of questions you should ask yourself before participating:

Do I understand what to invest in and how the bitcoin and cryptocurrency market works?

Am I happy with the level of risk?

How much more expensive now compared to a few months ago? If so, why would I want to buy something because it is more expensive? Where else in my life would I do that?

Is there any evidence that prices may rise further?

If I buy it now with the intention of selling it longer, who do I think would buy it from me at that higher price and why?

If an asset was so big, why didn't I care when it was so much cheaper?

Have I convinced myself that I am somehow “knowledgeable?”

If you do not have the answers to these questions, it is probably not a good idea to invest. If you buy bitcoin, make sure you don't put the money you need on the line. Read more about cryptocurrency tips (and mistakes to avoid).