As the economy continues to sputter, interest in cryptocurrency is on the rise. Though crypt currencies are subject to wild swings in value, the potential for making a considerable profit continues to attract more and more people every day. The cryptocurrency that continues to be the most valuable and well-known is Bitcoin.
Contrary to a belief held by many, it is not too late to buy in, but there are things you should know when you’re buying bitcoin. Many people want to jump in and see bitcoin’s price rise to the historic price of nearly $20,000 per coin seen in 2017, but that isn’t necessarily going to happen again right away. Understanding the following concepts will go a long way in generating a profit for those new to buying and selling Bitcoin.
The Cryptocurrency Market is Volatile
It does not take much investigation to see that the cryptocurrency market is volatile, especially for bitcoin. In an unbelievably short amount of time, Bitcoin’s price can rise or drop by hundreds of dollars. For example, the record high set for Bitcoin in 2017 fell to only $12,000 per coin by the following week.
Bitcoin owes its volatility to a few different factors. Like most traditional stocks, the price rises when there is an influx of buyers and falls when more people sell their bitcoin. These buying trends are influenced by several things, such as market news, government legislation, and the stock market’s performance.
Bitcoin is Not Anonymous
It is a common misconception that bitcoin transactions are totally anonymous. However, because transactions are permanent and stored publicly, it is easy for anyone to view someone else’s bitcoin balance and transaction history. While personal information, such as names and contact information, is not used to identify the people in each transaction, government agencies can link participating individuals to a transaction.
Bitcoin Transactions are Transparent
Due to how blockchain technology works, Bitcoin transactions are one of the most transparent means of payment in existence. As mentioned above, all bitcoin transactions are public and traceable, as well as being completely unchangeable. While this does not suit the needs of those using cryptocurrency to mask their purchases, it makes it impossible to make fraudulent transactions.
This transparency also has benefits outside of trading bitcoin. For example, large companies that use blockchain technology in the sourcing of their items can trace mistakes in their product all the way back to its source with minimal effort. For instance, if a type of lettuce were found to have been contaminated with salmonella, the blockchain would show precisely where that lettuce came from and anywhere it had traveled before the contamination was found.
High Bitcoin Prices Can be a Bubble
While everyone invested in bitcoin wants to see the price skyrocket, they should be aware that a steep increase in price is probably a bubble. Like many other investments, making a profit by trading bitcoin relies on good timing. In the words of stock market guru Warren Buffet, “buy low and sell high.”
Bitcoin can be taxed
Tax collectors mostly ignored bitcoin’s trading in its early days, but bitcoin’s potential for generating a massive amount of wealth has changed that for good. Now, regulating the cryptocurrency market is at the forefront of new legislation for tax authorities worldwide. In the United States, the U.S. Treasury has legitimized the use of bitcoin as a currency by recognizing its growing importance and announcing that bitcoin investments and transactions cannot be viewed as illegal.
The Internal Revenue Service considers bitcoin an asset or intangible property, not a currency. Because of this, the IRS requires bitcoin owners to report any transactions they have made, no matter how small. They require bitcoin to be taxed like any other asset and have sent over 10,000 letters to individuals warning them that the IRS suspects them of failing to report bitcoin-related income. It is crucial for individuals getting into bitcoin for the first time to consult a tax professional about the matter at the end of the tax year.
Bitcoin is Accepted All Over as a Form of Payment
It is easy to consider owning bitcoin an investment similar to owning stock, but it is actually a viable currency form. In fact, bitcoin and other digital currencies are accepted all over as payment for various goods and services. Some cryptocurrency exchanges allow users to buy and sell bitcoin using a PayPal account, making it even easier to utilize bitcoin as a replacement for fiat currency.
Bitcoin is not relegated to being accepted by small, tech-savvy companies, either. Several large, well-known companies accept bitcoin as a form of payment, including Microsoft, Overstock, Whole Foods, NewEgg, and Expedia. This makes bitcoin an even more attractive investment for individuals who want to try to make a profit on the coin while still being able to use it to make practical purchases.
It Isn’t Hard to Buy Bitcoin
At one time, purchasing bitcoin may have seemed like it took a lot of research, effort, and know-how, but that is no longer the case. New cryptocurrency exchanges are popping up every day that aim to help individuals purchase bitcoin quickly. Some exchanges have even carved pathways for individuals to purchase bitcoin with a credit card.
One thing that is important for individuals to do before buying bitcoin is acquiring a bitcoin wallet. Since bitcoins are a virtual currency and have no physical form, they are stored through a private key. The key is an alphanumeric code that gives a person access to their bitcoin balance.
A bitcoin wallet stores this private key and a public key that allows others to send bitcoins to a person’s wallet. There are a few kinds of bitcoin wallets that a person can choose from depending on their privacy and security needs.
The Bottom Line
Bitcoin is a powerhouse form of digital currency that shows no signs of going away any time soon. Arm yourself with information about how it works and get started buying bitcoin today.