The year on Wall Street has been challenging. As a result, we've seen the steepest 30-percent bear market drop in history, as well as the most fierce bull market rally in history, with the benchmark S&P 500 index rising to new record highs in only five months. However, the coronavirus epidemic has not affected the value of the cryptocurrency bitcoin. Year-to-date, bitcoin has increased slightly under 60% as of Wednesday evening, Oct. 14. For more information, visit crypto success
Now is a great time to get into cryptocurrency investing? There are several methods for buying Bitcoin and other cryptocurrencies that have recently been in the headlines. Though it may seem counterintuitive, you must assess your financial condition before you dive too deep into the crypto world. Something isn't necessarily a good idea just because it appears attractive. Here are a few reasons why you should rethink your cryptocurrency investment strategy.
In 2021, why is bitcoin doing better than expected?
Why does bitcoin keep outperforming stocks? The concept of scarcity is one of them. Because there are only 21 million bitcoin tokens available for mining, scarcity drives the price of these digital tokens higher. To put it another way, those who acquire bitcoins feel that paper money's time has come and gone. The pandemic may show that actual currency may be a carrier of dangerous germs, which could prove to be partly true. Peer-to-peer payment services, such as bitcoin, are increasing, making it the better digital money. Bitcoin is now the intermediate asset on many cryptos investing sites to buy a less popular cryptocurrency.
Reasons Crypto and Bitcoin are a Terrible Investment
However, despite how well bitcoin has performed for investors in 2020, I believe it remains a bad investment.
Prices of cryptocurrencies have a history of rapid rises and falls. For popular currencies like Bitcoin, daily price fluctuations may be enormous. However, the price has fallen to slightly over $2,100 as of July 11, 2021. More minor currencies like Dogecoin may see even greater volatility. Until bitcoin has a reasonably steady price, it isn't a good investment.
The supply of bitcoin is limited exclusively by the rules outlined in its software. Bitcoin's token count is by computer code instead of actual metals like gold, which we can only extract from the soil. Programmers might opt to raise the bitcoin token cap at any time in the future if there is widespread community consensus for doing so. As a result, bitcoin gives the impression of scarcity while relatively common in the digital currency world.
Cryptocurrency Valuation Is Difficult
When determining the value of a company's shares, consider management, the balance sheet, and revenues. You may make an opinion on the long-term success of the company's goods and services, and you can track the long-term historical value of different stocks and stock indices in your portfolio.
Some of these items can be held in hand and felt. Cryptocurrencies are inaccessible and have a short history compared to other asset types. Comparing it to different asset types can be challenging since determining a reasonable value is challenging.
Utilities Not Working
Cryptocurrency's supreme leader, Bitcoin, is likewise beset by an issue: Only 18.51 million bitcoin tokens have been issued yet, with a tiny group of investors holding 40 percent of them. To put things in perspective, the global GDP in 2017 was $81 trillion. The total value of bitcoin tokens is estimated to be $114 billion to $125 billion, and these tokens are not being kept in reserve by investors. There isn't much point to this.
Though bitcoin indeed uses a considerable lot of electricity, The New Yorker claimed it's harmful to the environment since coal-fired power plants generate it. Some cryptos are less efficient than others if you're looking to make environmentally friendly investments. If you want to avoid supporting currencies that primarily rely on fossil fuels, think again about which ones you fund with your cash. If this is a significant concern for you, you may want to think about how you might invest in renewable energy instead.
Low Entry Barriers
While Bitcoin has the benefit of being the first to market, for the time being, anybody may enter the cryptocurrency market thanks to the minimal entry requirements. The decentralized digital ledger that records transactions, blockchain, can be built, and a digital token can be to the network with just a little bit of effort and coding skills. The underlying blockchain of bitcoin isn't unique in any way that other companies couldn't match.
Even if you figure out how to pay taxes on your bitcoin profits, filing your taxes is likely to be hard enough anyway. In the end, your tax situation is mainly determined by how you acquired your bitcoin. Coins purchased with fiat money and subsequently held as investments are typical as capital assets, and you must select if any capital gains taxes are due after selling.
It's important to note, though, that if you get cryptocurrency in exchange for your services, it's considered income and may be taxed as regular income, depending on how much it was worth on the day you received it. It would help if you got the advice of a tax specialist before making any cryptocurrency investments.