Cryptocurrency and Bitcoin and understand it before investing in it

With the introduction of Bitcoin into circulation in general 2009 Many around the world became fascinated with cryptocurrency, and during its first decade, the coin hit the mainstream, becoming a household name.

El Salvador launched Bitcoin as a legal currency recently on September 8, and due to its popularity alone, many investors and financial advisors cannot evade the following question:

Should we invest in cryptocurrency? To get to the bottom of this question, let's start from the beginning.

What is cryptocurrency?

Cryptocurrency is a digital currency created as a payment medium that goes beyond the traditional banking structure. According to its creator (who used the pseudonym Satoshi Nakamoto) She may “Made to be a peer-to-peer (for payments) electronic version, without going through a financial institution.”

And Bitcoin mining As it has become known, is the process of finding Bitcoin Using advanced hardware, to solve difficult math problems, miners are rewarded for their work with new bitcoins.

Most owners Bitcoin They simply buy it as an investment, and speculate the price will go up. There are thousands of cryptocurrencies, while Bitcoin is the most used one, accounting for nearly half of the market share.

How big is the currency growth?

One Bitcoin was worth about one US dollar in a year 2011. Then by April 2021 The currency has reached its highest price Until now, transcend 64 thousand dollar.

Looking at the numbers, bitcoin returns averaged over 200% annually over the past decade. Let's compare this to the annual return of a stock market index S&P 500, which witnessed an excellent decade, and reached about 16% annually.

Is it yours?

Although these returns are certainly unreasonable, we encourage you to keep several things in mind, if you are going to invest in this currency.

First: the evaluation

Cryptocurrency, which is traded entirely based on investor sentiment, lacks the necessary economic foundations to support any valuation, and on the other hand, stocks have a core value based on the company's earnings, which gives a rationale for the investment.

While some may state that buying cryptocurrency is a way to invest in Blockchain (the technology behind cryptography), owning Bitcoin does not give ownership in Blockchain technology.

Second: performance

While the cryptocurrency may continue on its upward trajectory for some time, it is important to remember that past performance does not indicate results in the future.

Third: the risk

Cryptocurrency is a very volatile investment, and prices can fluctuate dramatically, even within seconds, so the risks are very high, and investors have to feel comfortable with the risk of losing.

Fourth: history

What if each tulip bulb costs more than the average annual salary? Event tulipania Indeed, in Western Europe in the 1730s, when Dutch investors started buying tulips and pushed the price up dramatically, the prices collapsed.

Or what about the Internet bubble in the late 1990s? The Nasdaq has quadrupled in five years, and subsequently fallen by 78% Within two years.

Ultimately, whether or not you decide to invest in Bitcoin, our goal as advice providers is to carefully help guide your investment speculative decisions.