The new year is only a few days old, and already, there’s a buzz among investors.
The reason is the price of Bitcoin, the most popular form of cryptocurrency, which has skyrocketed to record levels.
The price of Bitcoin on Sunday was more than $33,000, a record high, before dropping to over $31,000 on Monday morning. In December 2018, the price of Bitcoin was almost $3,200.
But what exactly is it, and what does it mean for investors in the short term and long term?
Here are a few questions surrounding the rise of Bitcoin.
What is cryptocurrency?
Cryptocurrency is digital or virtual currency that can be exchanged for goods and services.
It’s a similar concept to having tokens in an arcade or casino chips, and exchanging real money for them or cashing them out for real money. A secure technology called blockchain handles transactions.
Just like stocks and real estate, the way to profit on cryptocurrency is to sell it for higher than what you paid for it.
How many types of cryptocurrencies are there?
There are thousands, but by far, the most popular type of cryptocurrency is Bitcoin, which had a value of $421.7 billion as of Dec. 18, according to NerdWallet. The next second-most popular is Ethereum, which was at $73.2 billion.
Why are cryptocurrencies so appealing?
Reasons vary, but popular ones include the following, according to NerdWallet:
- Cryptocurrency doesn’t require central banks to manage the money supply. Inflation tends to be an issue with how those banks can reduce the value of money.
- Many feel cryptocurrency is more secure than traditional payment systems.
- Many feel Bitcoin is the currency of the future and want to buy it now.
Is cryptocurrency a good investment?
Traditionally, it is not, because of its volatile nature. Bitcoin traded at close to $20,000 in December 2017, dropped to just more than $3,000 in early 2019, and now has exploded again.
People could be buying up Bitcoin in droves now as a “FOMO” purchase. For those unfamiliar with the term “FOMO,” it means “fear of missing out.”
For the short-term though, it could still be a great investment for people who have the money to buy at least one Bitcoin, because experts still feel it’s a bull market.
In an article on CNN, Nicholas Pelecanos, head of trading at the cryptocurrency firm NEM, said Bitcoin could go up to $50,000 by Valentine’s Day.
“I believe we are just at the beginning of what will be an immense bull market,” Pelecanos told CNN.
How can people buy cryptocurrency?
For those interested in purchasing Bitcoin or other forms of cryptocurrency, you’ll need an online app that can hold currency called “a wallet.” An account can be created and real money can be transferred to buy cryptocurrencies.
Do you think cryptocurrency is something worthwhile to invest in? Let us know in the comments below.