By: Mantri Pragad Markandeyulu
Part – 6 A Blog Series On Cryptocurrency
Make your purchase
After linking your bitcoin wallet to the bitcoin exchange of your choice, the last step is the easiest — deciding how much bitcoin you want to buy. While bitcoin made news in January by cresting past $40,000 for the first time, bitcoin (trading symbol BTC or XBT) can be bought and sold for fractional shares, so your initial investment could be as low as, say, $25.
Manage your investment
If you like the idea of day trading, one option is to buy bitcoin now and then sell it if and when its value moves higher. But if you see a future for bitcoin as a digital currency, perhaps your investment plan is to buy and hold for the long haul. Whatever your plan, know that owning bitcoin creates a complex tax situation.
Should you buy bitcoin?
Bitcoin is an incredibly speculative and volatile buy. Stock trading can give you a similar thrill — and picking stocks of established companies is generally less risky than investing in bitcoin. What online brokers offer Bitcoin?
Of the online brokerages and cryptocurrency exchanges that NerdWallet reviews, the following currently offer bitcoin.
Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable
Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation
Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems
Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money
» Learn more: How to buy Ethereum Back to top
Are cryptocurrencies a good investment?
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did. That’s what’s called “the greater fool” theory of investment. Contrast that to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation.
“For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability.”
As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have advised would-be investors to steer clear of them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks:
“It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history.
For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again. This price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?
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