Amid meme-stock mania and a tech-startup-induced frenzy, Bitcoin hit new highs in late 2021, topping out at just over $68,000 per coin. Since then, the price plummeted almost 50% in volatile trading to start the new year.
However, if you zoom out on the historical timeline, many think we are still in the early innings of a technology poised to change the world. An investment in Bitcoin in early 2017 would be up more than 3,500% at today’s prices, even after the recent decline.
According to Adam Smith, author of The Crypto Adviser, “Crypto has been one of the best performing asset classes of the past decade, despite a regular flow of negative press coverage that stems from a lack of understanding of crypto and blockchain technology.” Here are three things to consider if you are thinking about buying Bitcoin in 2022.
Keep an Eye On Institutional Adoption
Over the past few years, Bitcoin has become more entrenched in the economy, a sign of optimism for its future prospects. No stranger to cryptocurrency or controversy, Elon Musk announced that Tesla had purchased $1.5 billion of Bitcoin in early 2021. In addition, many mainstream financial platforms such as PayPal and Robinhood allow users to buy and sell Bitcoin.
Bitcoin has even gained adoption as a legal currency. “Last year, El Salvador decided to make Bitcoin legal tender. With other countries like Paraguay and Turkey looking to do the same, the future is bright for Bitcoin,” noted Stefan Ateljevic, an entrepreneur in the crypto space.
Focus on the Long Term
In the short term, volatility reigns. The future of Bitcoin is still murky, and any new information can cause large price swings. Investors who bought Bitcoin at the top of the previous spike in December 2017 would have seen its value decline by almost 84% over the next year. However, those who held on saw prices more than triple over the next five years.
Bitcoin has been compared to investing in the Internet in its early days, and investors should have a similar long-term outlook. “Investing in Bitcoin is the equivalent of investing in the Internet in the mid-90s,” said Michael Denny, CIO of The Investment Nerd.
Understand the Potential Risks
While the potential future of Bitcoin looks bright, there are risks that investors should be aware of before making a purchase. Francis adds, “Bitcoin is a new asset, relatively speaking. The market has only been around for about a decade, and thus it is more susceptible to manipulation and volatility.”
Given the relative newness of the cryptocurrency market, a looming risk is eventual government regulation. Already there have been crackdowns in countries such as China, where crypto has been banned entirely in favor of its own central bank digital currency based on the Yuan.