2021 has started with Bitcoin at record highs and many investors have taken the plunge to invest in Bitcoin. But is 2021 the year of Bitcoin and can it continue to break records? We analyze the characteristics of this cryptocurrency and its history to date.
Whether to diversify our investment portfolio or to obtain a return in the short term, Bitcoin represents an opportunity. Much of this interest is due to the strong upward trend it has been showing in 2020 and the first days of 2021.
However, this is not an easy play. Investing in Bitcoin is usually a challenge, due to the strong volatility it presents and the “youth” of this financial asset. Sharp movements are usually present in this market, as well as a series of other factors that make us wonder whether, after such a high rise in its price, it is a good time to invest in Bitcoin during 2021.
How does cryptocurrency investment work?
In order to start with the basics, if you are wondering what Bitcoin is, it is a digital currency: a cryptocurrency. Its use is equivalent to money, only that it is intangible and has certain differentiating characteristics.
It was created by Satoshi Nakamoto. Its particularity is that it was the first of the cryptocurrencies, launched in 2009 (it was born in 2008, but the first operations were carried out in 2009). It is also the most popular, the one with the largest market capitalization (number of cryptocurrencies in circulation multiplied by their price) and the one that sets the trend.
Cryptocurrencies represent a payment system parallel to the traditional one. They allow financial transactions to be carried out quickly, securely and discreetly, without the need for any type of intermediary (no bank intervenes in the movement of digital money). One of its main characteristics is its independence: Bitcoin (like other cryptocurrencies) is not subject to any government or central bank. It is not affected by monetary policies, interest rates or inflation.
In other words, cryptocurrencies do not suffer devaluations as a result of rising prices. Nor are they affected if a central bank alters official interest rates. It is possible to invest in them in the long term as a safe haven asset.
They are supported by Blockchain technology, a decentralized ledger, in which movements are made through notes approved by all members. This makes them difficult to counterfeit and prevents fraud.
Thanks to these characteristics, cryptocurrencies, with Bitcoin at the forefront, are becoming increasingly popular as a means of payment and as an investment asset. These factors give it a special appeal, as we will see below. Investing in Bitcoin is similar to investing in gold.
How has the Bitcoin market performed in the past?
Despite being a volatile asset, Bitcoin is also a source of profitability. Its history shows us how it has been able to increase wealth.
Since its creation, Bitcoin has shown an incredible appreciation, making it a financial asset to be considered by all types of investors.
Already in 2010 it began to arouse expectation. Bitcoin was used as a means of payment for the purchase of two pizzas. A curious note is that 10,000 Bitcoins were paid. Logically, the current price had not been reached. If those same pizzas had been bought eight years later and for the same amount of Bitcoins, they would be the most expensive in history.
In any case, Bitcoin began to gain ground as a means of payment. A currency that was traded on a market (just as other traditional currencies are traded on the Forex market), however, its potential had not yet been unleashed, it was not seen by most as a value to invest in.
Bitcoin begins to be considered an investment asset
It was from 2017 when the interest of all traders was awakened. Cryptocurrencies were the subject of intense debates. A large number of new cryptocurrencies came to light that, according to certain media, had the capacity to become the “money of the future”. However, none of these new cryptocurrencies has managed to wrest the crown from Bitcoin.
During the same year, Bitcoin (which, let us remember, sets the trend in the cryptocurrency market) appreciated by around 2,000% (it went from trading at just over $1,000 to over $20,000). It was the star market, the great revelation. Its growth was exponential.
Much of this success is due to the fact that many operators were aware that the money supply is limited (no more than 21 million Bitcoins can be extracted). It is beginning to be considered as a valuable asset.
In this sense it is also similar to gold: it is a limited, scarce asset, and therefore valuable. Thus, Bitcoin has come to be seen as an investment asset, as well as a means of payment.
In any case, investment in Bitcoin began to take a speculative turn, with several analysts claiming that a bubble was brewing. On December 17, 2017, the price reached its zenith (precisely when Bitcoin futures began to be listed, allowing for easier short trades).
Bitcoin’s big price crash
On December 18, 2017, what they called “the bursting of the bubble” began. Since reaching its peak price, and after about a year, it suffered a devaluation of more than 80%. In December 2018, Bitcoin was once again priced above $3,000.
So the price remained, during 2019, investing in Bitcoin began to regain attractiveness and a rebound began. The price stabilized at around $10,000.
2020: the new rise of Bitcoin
It was not until the year marked by the coronavirus crisis (Covid-19) that Bitcoin made the news again.
Indeed, although in the first moments of the pandemic (when industrial activity was paralyzed) it did not react as a store of value and fell in price along with the rest of the financial markets, throughout 2020 it managed to break new highs. Its price was in a clear bullish phase, totally vertical.
Historical keys to the Bitcoin market
- Early 2010s Begins to attract interest. Gains ground as a means of payment
- From 2017 Bitcoin begins to be considered an investment asset and appreciates by more than 2,000%. Speculation begins
- The bursting of the bubble Devaluation of more than 80% in one year.
- 2020 Since 2019 and especially in 2020, Bitcoin has regained attractiveness, with exponential growth in 2020, breaking all-time highs.
Is it a good time to invest in Bitcoin in 2021?
The Bitcoin price continues its ascent, it has even traded above $40,000. In this context, many traders are wondering if it is a good time to invest in Bitcoin. Is it profitable to invest in an asset that has appreciated by 900%?
In principle, we could say that it is not necessary to buy a full Bitcoin to trade in this financial asset; most investment platforms support the purchase of fractions. Thus, it is not necessary to pay such a high price in order to invest in Bitcoin.
In addition, if what is intended is a short-term operation, there are derivative instruments, those in which financial leverage is used.
It is worth noting that, as we can see in the graph above, this is a financial instrument with strong movements. When using leveraged products, extreme caution should be exercised.
What do investors think about Bitcoin in 2021?
There are investors who believe that Bitcoin’s structural trend will continue to be positive, even though it is likely that, after this latest upward momentum, the market will take a breather and a correction may be seen.
Herminio Fernández, an expert in Bitcoin, affirms for the newspaper “La Razón” that in digital wallets 80% of them have not been carrying out operations with this asset for two years”. In other words: the price growth does not have a speculative “motive”. Bitcoin is being bought as a security.
He also states that several financial institutions are choosing to invest in Bitcoin.
The acceptance of Bitcoin as a security to invest in is increasing. The idea is to introduce this financial asset in the classic markets (futures contracts, ETFs and other products that use Bitcoin as underlying).
The problem may come from the aforementioned correction, moreover, the most worrying thing could be the level of the correction. Being such a volatile market, and after such a powerful rise, Bitcoin’s exchange rate may have a wide downward run.
However, it should not be forgotten that it is a safe haven asset, a value that does not devalue and, moreover, its limited nature offers a reason to grant it a high value. In times of crisis, it has growth potential. For this reason, its share price is likely to remain high as long as the health alert caused by the coronavirus pandemic (Covid-19) remains in place.
In the longer term, Bitcoin’s price will depend largely on the Blockchain’s ability to revolutionize the technology and financial industry.
Another key to investing in Bitcoin in 2021 comes from the hand of diversification (in fact, this is the most classic and effective defense mechanism). If the strategy is to buy Bitcoin in the long term, treating this financial asset as a store of value, the risk is reduced; but experts recommend buying other financial assets with the benefits of investing in this fascinating cryptocurrency.
Where can I buy bitcoin in 2021?
First of all, it’s recommended to use current discount offers of cryptocurrency exchanges and trading platforms as you can save a lot of money that way. This is a good source: https://www.cryptocoupons.org/
To buy bitcoin, it is crucial that you trade with a reputable exchange, which has a large user base, a high trading volume and good commissions for buying/selling cryptocurrencies.
The exchange will allow you to exchange fiat money for Bitcoin or another cryptocurrency.
Currently we have a huge number of exchanges of all types and operating in different countries, some of the largest and best reviews to buy Bitcoin are:
Bitpanda is an Austrian exchange founded in 2014 and has more than 1M users. Bitpanda has a large offer of cryptocurrencies, in its catalog we find more than 30 different cryptocurrencies.
Kraken: Kraken is one of the oldest brokers in the market and has become one of the most relevant, it is a platform that has advanced charts, where we can see the depth of market (orders in the market), we can include advanced orders as in GDAX and track our operations and evolution of our profits/losses.
Binance: The world’s largest cryptocurrency exchange. Every day in Binance millions of orders are crossed. It is one of the exchanges with the largest variety of cryptocurrencies and functionalities, but it is one of the most difficult to use.
Coinbase: This is one of the most popular exchanges to buy Bitcoin. It is one of the easiest platforms to use. You can buy bitcoins by bank transfer or with your credit card. Coinbase also has its Pro platform, with which we can include advanced orders such as Stop Loss, limit orders and market order.