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No matter what type of investor you are, Bitcoin (CRYPTO: BTC) has likely caught your eye, thanks to its rapid rise to over $ 60,000 a coin in just a few short years. It’s natural to wonder if you should add it to your portfolio, especially since some bullish investors claim that its value could one day exceed $ 100,000 per coin.
But if you’re hoping to become a Bitcoin millionaire, you can’t put your cart before your horse. Two things need to happen before you can make a fortune with Bitcoin or any other cryptocurrency.
Image source: Getty Images.
1. You must invest in Bitcoin
Let’s start with the obvious: you’ll never make money with Bitcoin if you don’t own any tokens. If you just want to buy a small amount of Bitcoin, that’s not too difficult to do. Most cryptocurrency exchanges allow you to buy partial coins, so you don’t need thousands of dollars to get started. And you can still make a nice little profit, even if you don’t own an entire coin.
Let’s say you are investing $ 5,000 in Bitcoin right now. At the time of writing, that would buy you around 0.13 of a Bitcoin. If Bitcoin comes back to $ 60,000 a coin and you sell it, you’ll pocket around $ 2,800 in profit. It’s not bad, but it won’t make you a millionaire.
A single Bitcoin is trading for just under $ 39,000 as of this writing. Even if you had a whole coin, you would only earn around $ 61,000 if Bitcoin hit $ 100,000 a coin. You will have to buy more than 16 Bitcoins to make a million dollar profit if Bitcoin hits $ 100,000, which means coughing up over $ 620,000 right now. It is not an easy task for many people.
You might be able to make a million dollar profit with less Bitcoin if it ends up being worth more than $ 100,000 a coin, but now we come up against our second problem.
2. More and more businesses need to embrace Bitcoin
The current value of Bitcoin is largely determined by speculation. Few companies currently allow customers to pay for products with Bitcoin or any other cryptocurrency, so its practical value is limited. That could change if the cryptocurrency is adopted more widely over the next few years, but there’s no way of knowing if that will actually happen.
There are legitimate concerns about the widespread adoption of cryptocurrency, including:
Account Access and Security: People have already lost millions of dollars because they lost access to their crypto wallets and all the coins they contain. Hackers have also stolen billions of dollars in crypto tokens from cryptocurrency exchanges. Illegal Activities: The untraceable nature of cryptocurrency transactions makes them an ideal form of payment for criminals, and it can be more difficult for governments to know where that money is going. Effects on the environment: Bitcoin mining requires massive amounts of energy A single Bitcoin transaction has the same carbon footprint as 123,963 hours of watching YouTube, according to Digiconomist, and the amount of electricity it uses could power an American household for nearly 54 days. This problem would only get worse if Bitcoin was used more widely. Government Watch: Federal governments have stood idly by and watched the crypto craze so far, but it likely won’t last forever. Governments could ban cryptos outright, as India is considering, or they could try to regulate the crypto market.
These are significant hurdles to overcome, and if Bitcoin is unable to do so, all of those coins that people are currently buying for $ 39,000 a coin could become worthless. It’s not impossible that Bitcoin could one day be worth $ 100,000 or more, but it’s far from a safe bet.
Is Investing In Bitcoin Right For You?
If all of this makes you a little wary about investing in Bitcoin, that’s okay. It is not for everyone. If you have some extra cash and want to invest some money in cryptocurrency just to see what happens, that’s fine. But if you’re not prepared to take that risk, there are other, safer paths to becoming a millionaire.
You can invest in cryptocurrency stocks rather than the cryptocurrencies themselves. These are actions of companies that should benefit if cryptocurrencies become more widely accepted. But they’re also solid businesses in their own right, so they have the potential to make you money even if Bitcoin never takes off.
Or you can go for an index fund instead. These instantly give you ownership of hundreds of stocks at once, allowing you to diversify your portfolio without spending a fortune. There are many index funds out there, but some of the most popular are the S&P 500 index funds. These contain stocks from all 500 companies in the S&P 500, and they tend to generate returns that are very similar to the index itself.
No one knows what the future holds for Bitcoin. But even if it meets people’s wildest expectations, you don’t want all of your eggs in one basket. Cryptocurrency prices fluctuate wildly, which is problematic if you have to sell your coins at a certain point in time. It is best to divide your money among several of the investments mentioned above to give you the best chance of getting and staying rich.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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