With Bitcoin investing now available on the eToro platform for clients in the Netherlands, we would like to take this opportunity to cover some of the basics of buying Bitcoin for beginners. So, if you don’t know your Bitcoin from your blockchain, this article is here to help.
Is there a Bitcoin barrier to entry? For many curious investors who have yet to dip their toes in the proverbial waters, the biggest thing holding them back may be summed up in one wordknowledge.
The more you try to wrap your brain around the technology behind Bitcoin, the more confused you may be about its actual investment value. How exactly is Bitcoin mined? What is a hard fork? And proof-of-stake versus proof of concept? Head-scratchers abound.
If we haven’t lost you yetgood. While you may never master the concepts of blockchain and how cryptocurrency is created, in reality, you don’t need to when it comes to investing. All you really need to know is why cryptocurrency has value, how that value compares to traditional currencies, and what investing means in the long run.
On platforms like eToro, users can deposit as little as $50 to fund an account where they can buy, sell and hold Bitcoin, along with over a dozen other cryptocurrencies.
So, what makes crypto different from investing in traditional currency, like the Euro or the US dollar? Here are a few key distinctions:
One of the big issues with investing in the US dollar is inflation, which has been made increasingly evident during the Covid-19 pandemic. As the US dollar weakens at a more rapid rate, with trillions printed by the Federal Reserve, it is no surprise that investors will look for unique ways to diversify their money.
How does inflation affect Bitcoin? In the current context, it doesn’t. That is because Bitcoin has a finite amount of 21 million coins, so while the value can increase, the maximum amount in circulation cannot. Currently, there are 18.7 billion Bitcoin in circulation, meaning there are still some left to be mined. As a result, many investors look to Bitcoin as a hedge against the damaging effects of inflation.
Store of value
Bitcoin’s finite supply lends to its store of value over time. While gold was the original intrinsic asset, its cumbersome nature led to it being replaced by fiat (i.e., paper) money. A store of value, meanwhile, is an asset that maintains its worth and can be exchanged in the future with no deteriorating value, which cannot be safely said for current physical currency.
Bitcoin, meanwhile, checks all of the major boxes as a strong store of value over time. It has a steady level of scarcitythanks to its finite supply, it is easily divisible (up to eight decimal points), it has growing use as a utility (i.e., form of currency) in transactions, it is easily transportable through digital wallets, it is durable as a non-physical currency and lastly it is nearly impossible to counterfeit thanks to blockchain encryption technology.
The problem with Bitcoin’s value in the past was that it was mostly driven by retail investment, which ebbed and flowed based on how consumer investors felt about the crypto’s future. In recent months especially, however, major players in tech and financial sectors have either plunked money into Bitcoin or adopted the currency on their platforms.
Companies like MicroStrategy, Square and Tesla have invested huge chunks of capital in Bitcoin, while both traditional (Visa and MasterCard) and modern (PayPal) financial institutions are starting to integrate crypto as a feasible form of currency. The more Bitcoin becomes mainstream, the more legitimate it becomes as a long-term investment.
This post originally appeared on the eToro blog.
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