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Bitcoin Market: Understanding Bitcoin and How It Works

Bitcoin crypto currency

If you have not heard at least some of the buzz regarding bitcoin then you have been living under a rock. The bitcoin market has been variously described as the future of currency, a better investment than the stock market, and a bubble that is soon to burst. This means that even the few who are perhaps too wary to invest in the bitcoin market are still left to ask what exactly bitcoin is and why is it getting so much attention. A simple perusal of the increase in value of bitcoins can squarely answer that question. A single bitcoin can rise in price from less than $200 to over a $1000 in a short period of time, and a value of $20,000 or more is not unheard of.

Table Of Contents
What Is the Bitcoin Market?
The Inherent Risks of Cryptocurrency
Is There a Need to Understand the Bitcoin Market?
How Do I Get Involved In the Bitcoin Market
Is It a Good Idea to Invest in Bitcoin?
How Can I Get Bitcoin?
What Is the Future of Bitcoin?
Is Investing in Bitcoin Safe?
Is Bitcoin Anonymous?
Is Bitcoin a Better Investment than Stocks or Bonds?
Will Bitcoin Become a New Currency?
Why Are Some Banks Banning Bitcoin?
Conclusion

What this means for the casual American is that the question of whether or not to invest in bitcoin is a serious one. For men and women who are on top of their investments and want to get the best bang for their buck, the reality is that bitcoin would appear to be an opportunity too good to pass up. If bitcoin really is seeing its value increase on orders of 100 or more, then the question would seem to be not whether or not to invest, but when to invest. Here we hope to expose you to the ins and outs of the bitcoin market to allow you to make the decision of how best to invest your hard-earned money.

What Is the Bitcoin Market?

The cryptocurrency industry is reported to be worth $800 billion, leaving many to kick themselves for not having entered it sooner. Yes, it is the same old story. I should have bought Apple stock before the first iPhone was released. I should have bought stock in this thing before that thing happened. And now, I should have bought bitcoin when it first came out. Of course, we do not yet have the technology to go back in time to purchase bitcoin before that dramatic jump in value, but we do have the ability to analyze bitcoin and figure out just what it is about the market, and the currency it is based on, that makes it so special.

Bitcoin is a form of cryptocurrency that can be bought and then exchanged for goods and services, just like any other currency. Or you can choose to hold on to the bitcoin until it increases in value and then unload it for a nifty profit. Although bitcoin may be similar to other forms of currency in that it has a value that can be tracked, and in that it is intended as a means of exchange (and used for that purpose), it does have something about it that it is markedly different from a true currency. Bitcoin is not issued by any government or agency acting on behalf of a government but by private companies, which is why it is called a cryptocurrency.

Although this facet of bitcoin may make it attractive to those fans of deregulation in the marketplace, of which there seem to be many at present, this does open up bitcoin as a source of risky business. Real currencies, that is, those issued by governments, have protections in place to prevent the currency from falling in value too much as this could lead to inflation, economic downturn, and a host of other bad things, not the least of which is a lot of angry people wondering why bread suddenly costs ten times more than it did a few weeks ago.

The Inherent Risks of Cryptocurrency

Because cryptocurrency is not backed by any government, but is essentially a pseudocurrency issued by business ventures as a form of economic vigilantism (or for more altruistic reasons), there is nothing preventing people investing in bitcoin from losing all of their money in a matter of days, or even hours. There is also nothing really protecting people investing in bitcoin from being swindled by people selling fake bitcoin or whatever other things bad guys do with cryptocurrencies that are not regulated because they are cryptocurrencies.

The reality is though, in spite of the risk, many people have made big bucks with cryptocurrency. This has led the more adventurous sorts to wonder if they, too, can make bank with cryptocurrency. Although we cannot completely liken cryptocurrency to gambling as some purveyors of cryptocurrency may make some promises, the comparisons are clear. Because there really is nothing backing cryptocurrency monetarily, like a real, genuine country, for example, there is nothing preventing cryptocurrency from being a bubble that will inevitably burst, as some have posited.

On the other end of the fence are those that claim that the bitcoin market will eventually replace genuine currency. Articles in prominent magazines have speculated that the lucrative world of currency trading, in which real currencies (not the crypto kind) are traded in order to make profits on the pips, will disappear because people will choose to invest their money in cryptocurrency instead. As the currency trading business of the foreign exchange market is often associated with slow or small profits, it is not difficult to understand why some have asserted that the bitcoin market will eventually replace forex.

Another reason why the bitcoin market has been predicted to experience great growth in the future is because modern men and women seem somewhat obsessed with online activity and cryptocurrency is essentially an allegedly anonymous form of currency that is traded online. If Facebook, Instagram, and Twitter are popular then why shouldn’t bitcoin be?

Before we delve into some of the more serious questions and concerns that people have about bitcoin, it is important to understand some basic facts about bitcoin and the bitcoin market. We have summarized some of the important aspects of the bitcoin market below:

  • Bitcoin is a cryptocurrency, which means it is not issued or backed by a Government
  • Bitcoin is issued by private business ventures, often startups
  • Bitcoin can be exchanged online for various goods and services
  • Bitcoin has value that can be tracked, and these values can increase dramatically over time
  • Bitcoin is tracked in a process called mining, which is recorded in ledgers called blockchains
  • Some companies like Expedia and Microsoft have decided to accept bitcoin as a type of currency while others have not

Is There a Need to Understand the Bitcoin Market?

There are a number of reasons why it is important to understand the bitcoin market. Although we would argue that knowledge is reason enough (most of us would like to know what’s going on in the world we live in), sometimes financial arguments are more persuasive. Not understanding the bitcoin market may mean that you decide to invest your money without understanding the risks you have taken. Or it may mean that you choose not to invest your money and watch your neighbors grow rich by investing in bitcoin and eventually moving out of the neighborhood.

See why understanding the bitcoin market is so important? Of course, this does not mean that once you are armed with knowledge of bitcoin that you have to invest. You, like many others before you, may decide that this bitcoin thing really is a bubble and that it is best to just steer clear of it. The reality is that speculation frequently drives the values of things up so it is not surprising that all of the curiosity around bitcoin has caused the value of bitcoin to increase. Whether this value is real or just a fairyland waiting to pop, like those super-high housing prices of the late ‘90s, is something that only time will tell.

How Do I Get Involved In the Bitcoin Market

Armed with knowledge of what bitcoin is and why there is so much interest in the bitcoin market, you are now ready to ask (and answer) some tough questions. We have summarized the general question of how to get involved in the bitcoin market by breaking it down into 8 major points.

Is It a Good Idea to Invest in Bitcoin?

Most things that a person can choose to do with their money represents a risk, especially when you are talking about commodities that have no intrinsic value. Food has intrinsic value. Even a house has intrinsic value, but bitcoin? As long as you understand that bitcoin may be a bubble that could eventually burst, you are ready to at least consider making an investment.

How Can I Get Bitcoin?

There are several ways to get bitcoin. The first step is to set up a wallet, which is not too different from a bank account number. These are held online and they are a way for people to send you bitcoin. Once you have a wallet, you can head to a bitcoin exchange site to get your hands on bitcoin. If you are based in the United States, it is a good idea to a choose an American-based bitcoin exchange.

What Is the Future of Bitcoin?

The future of bitcoin remains unclear. Although some have suggested that bitcoin is the future of currency and that foreign exchange will eventually disappear, the truth is that we do not know what will happen. Because some argue that cryptocurrency has no real value, it is not clear if they will eventually disappear or if they will truly be the currency of the future.

Is Investing in Bitcoin Safe?

This is a loaded question. This is like asking if gambling is safe. Investing in bitcoin is safe if you do not mind the possibility of losing very large sums of money. You can lose money if your bitcoin suddenly loses value, or if places decide that they will no longer take bitcoin, which in turn would likely cause bitcoin to lose value. On top of that, there are risks that come with online transactions, as bitcoin really is an economy of the internet, but people have managed to do alright even with this inherent risk.

Is Bitcoin Anonymous?

Bitcoin is supposedly anonymous because they are held in wallets that are not linked to personal information of the holders of the wallets. With that said, anyone with half a brain knows that nothing on the internet is really anonymous. If the Government is not watching your activities via the NSA, then private individuals are. If someone really wants to know who the holder of a wallet is, they can find out, even if they are a private person on the street.

Is Bitcoin a Better Investment than Stocks or Bonds?

Bitcoin differs from stocks and bonds, and even true currency traded on the foreign exchange, because bitcoin is not regulated by the Government and it is not issued by the Government. Although bitcoin can and has grown in value much faster than any stock or bond, it is also possible that that same bitcoin could drop in value to even less than what they were worth before they shot up. This can happen with stocks too, but there is a natural volatility of the bitcoin market that is in part tied to the reality that it is a cryptocurrency (artificial currency).

Will Bitcoin Become a New Currency?

There has been speculation that cryptocurrencies will eventually replace true currency. This has been speculated because cryptocurrencies have grown very quickly in value and they may be favored by a younger generation that favors non-governmental forms of exchange, which is essentially what cryptocurrency is.

Why Are Some Banks Banning Bitcoin?

Some banks and credit card companies are banning purchases of bitcoin. They allege that this is because bitcoin values could eventually fall to zero, but it probably has something to do with the involvement of banks in currency trading and a fear that cryptocurrency will impact foreign exchange trading if it becomes more popular.

Conclusion

The bitcoin market is open to you if you are ready to swallow the bitcoin pill. This is a world of risk and adventure, not unlike a James Bond-esque fantasy world of Russian roulette were the world hinges on when the table stops spinning. No, your life will not be at risk if you invest in bitcoin, but your financial security certainly might be.

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