Bitcoin Investment: Misconceptions Explained

June 25, 2019, by Interstein N.
Table of Contents Investment Misconception #1: Bitcoin Exists In a BubbleInvestment Misconception #2: Price Volatility Is BadInvestment Misconception #3: Bitcoin Is a ScamInvestment Misconception #4: A Few Whales Own 40% of BitcoinInvestment Misconception #5: Bitcoin Can Be Created InfinitelyThe Takeaway
Bitcoin misconceptions

If you’re new to crypto investing, you may have some doubts about whether Bitcoin is a safe investment. Rapid changes in the crypto market have provoked plenty of skepticism over the past year, and many people have attempted to discredit Bitcoin as an investment option. Most of those criticisms have little basis in reality. Let us clarify some of the biggest misunderstandings about Bitcoin investing.

Investment Misconception #1: Bitcoin Exists In a Bubble

Some people believe that Bitcoin is in an economic bubble that could “pop” and make Bitcoin permanently worthless. Many feared that this was underway in 2018, when Bitcoin experienced a prolonged price crash. However, that crash never came close to reducing Bitcoin’s value to zero, and Bitcoin’s price has partially recovered since then. Nobody can say for sure what Bitcoin will eventually be worth, but there is currently no reason to think that it exists in a bubble.

Investment Misconception #2: Price Volatility Is Bad

2018’s extended price crash is part of another misunderstanding: the idea that changes in the price of Bitcoin are always bad. The price of Bitcoin is famously volatile and fluctuates rapidly, and some people believe that this makes Bitcoin a poor investment. But contrary to popular belief, volatility is not a bad thing, especially for long-term investors―in fact, low prices are precisely what allow you to buy Bitcoin affordably and then sell it for a profit later on.

Investment Misconception #3: Bitcoin Is a Scam

Some people believe that Bitcoin is a scam―that Bitcoin holders are selling an asset that is worthless and trying to get away with the money before anyone finds out. Some cryptocurrency startups are fraudulent in this way, but Bitcoin itself is not. Millions of users have exchanged Bitcoin over the past ten years, meaning that Bitcoin has proven its legitimacy time and time again.

Investment Misconception #4: A Few Whales Own 40% of Bitcoin

“Whales” are wealthy investors who supposedly control a large portion of the Bitcoin supply. This is partially true: in 2017, Bloomberg reported that 1000 accounts hold 40% of all Bitcoin, which means that some very wealthy investors own a large amount of Bitcoin.

However, some of the largest Bitcoin accounts belong to exchanges, which store Bitcoin on behalf of their clients and users―who are of course the real owners of that Bitcoin. As such, the Bitcoin supply is more widely distributed than it might initially appear to be.

Investment Misconception #5: Bitcoin Can Be Created Infinitely

Some people believe that Bitcoin isn’t worth anything because it can be created out of thin air. This is a misconception: Bitcoin production is strictly limited by mining, a demanding process that generates Bitcoin very slowly and sets a cap on Bitcoin’s total supply.

So far, about 85% of the entire Bitcoin supply has been mined, and it is becoming increasingly difficult to mine new Bitcoin. This process limits the Bitcoin supply and ensures that demand remains high―and ensures that Bitcoin has lasting value.

The Takeaway

If you are a new investor, it is always a good idea to think carefully and make informed investment decisions—on your own. However, many common concerns are simply unfounded, as we’ve shown here. After ten years, Bitcoin remains a credible investment opportunity. In the next article of this series, we’ll discuss and debunk some common myths about Bitcoin safety and privacy.

Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.

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