Bitcoin, the original cryptocurrency, was launched with a white paper back in 2008; its author remains anonymous. Bitcoin’s meteoric rise since then, from costing less than a penny to more than $69,000, has minted a large number of millionaires and billionaires. And the fear of missing out on bitcoin has resulted in a tsunami of investors rushing into cryptocurrencies

Here are five things all investors should know about bitcoin.

Bitcoin Investing Has Gone Mainstream

According to one study, 55% of all bitcoin investors started investing in the cryptocurrency in 2021 alone. The vast majority of bitcoin investors (87%) own one or more other digital assets.  And that momentum is expected to continue with investors three times more likely to view bitcoin as a better store of value than a fiat currency. 

Bitcoin investors remain, for the most part, younger males who are risk tolerant. But the demographics are shifting. When asked, 46% of investors between 55-64 years of age and 53% of women said they would “definitely” and “probably” consider investing in bitcoin.

Investing in cryptocurrency is becoming mainstream. With more than 10,000 cryptocurrencies to choose from, the biggest question among investors is “which one” is right for them?

Bitcoin Differs from the Traditional Fiat Money System

Bitcoin was born just as the global stock markets were crashing. The U.S. dollar was in decline, the U.S. housing market was collapsing, and the Federal Reserve had just announced the first round of its multi-trillion-dollar quantitative easing policy.

Bitcoin was a response to the traditional fiat money system. Traditionally, governments borrow money by issuing bonds and ordering central banks to buy those bonds by creating money, consequently devaluing the underlying currency.

Bitcoin gets around this with its scarcity. Bitcoin’s finite supply is the reason many argue it is a superior store of value compared to traditional fiat money.

There are two types of “bitcoins”. Bitcoin (uppercase) the network and bitcoin (lowercase) the token. 

The Bitcoin network is a peer-to-peer digital payment system that is created through an encrypted code. This code is comprised of a string of random numbers and letters that creates bitcoin tokens, which are then deposited into a virtual wallet. 

There are currently around 18.9 million bitcoins in circulation. The maximum number of bitcoins will be capped at 21 million; a milestone expected to come into fruition by 2140. The mining of 21 million bitcoins might sound small, but each bitcoin is divisible by eight decimal places, as opposed to two decimal places for Canadian and U.S. dollars.

bitcoin timeline

Bitcoin Does Not Have a Physical Existence

Because bitcoin is digital, it does not exist in a physical sense. It’s a computer code, not issued by any central bank. It can therefore be transferred without the need of a bank, to anyone, anywhere, at any time. 

This is a key feature of bitcoin. Without a central bank, money cannot be devalued, and accounts cannot be seized or frozen. 

The lack of a central bank also means bitcoin cannot be as readily manipulated as a fiat currency.  While bitcoins are regularly being minted, there is a limit to the number that can be created. This is done in order to prevent inflation, but not speculation.

Bitcoin is also cited as a hedge against economic and geopolitical uncertainty. Because bitcoin has a finite supply, is decentralized, and not handicapped by central banks, a weakened global economy or stock market correction/crash could see alternative currencies like bitcoin maintain their value or climb higher.

Bitcoin’s Network Is Miles Ahead of Its Competition

Bitcoin’s first-mover advantage has given it a huge head start over its cryptocurrency competitors. At this point, it really has no competition. Bitcoin has a market cap of $836 billion*, while Ethereum, in second place, is less than half that size at $327 billion*. In third place is Tether with a market cap of $78 billion*. (*Note: Figures as of February 8, 2022) 

The disparate size and growing popularity of bitcoin provides it with distinct advantages that gives it superior, long-term growth potential over its peers. Over the years, the Bitcoin network has experienced growing pains. But thanks to an increasing number of uses, miners, and infrastructures, its network has become second to none. 

After 13 years of operating as ‘the’ crypto store of value, bitcoin is expected to be the backbone of the entire digital asset ecosystem. This does not mean that bitcoin will not face more challenges. But compared to other cryptocurrencies, it faces less downside risk. 

The names of the top 10 digital assets by market cap changes every year; the only constant is bitcoin at number one. 

The fact remains, bitcoin has incredible upside potential, with analysts predicting it could hit $100,000 in 2022, and some even calling for bitcoin to touch $5 million by 2030. These are just projections, but they do show that analysts remain exceptionally bullish on bitcoin, a sentiment that investors will not find with much smaller cryptocurrencies.

There Are Different Ways to Invest in Bitcoin

How should investors go about adding bitcoin to their portfolio? No two investing vehicles are alike. They all have their advantages and disadvantages. Some of the most popular ways of investing in bitcoin is buying it directly, or through futures contracts, and exchange-traded funds (ETFs)

When it comes to gaining exposure to bitcoin, consider ease, transparency, and lack of volatility.

Most traditional brokerage firms don’t allow cryptocurrency trading. Therefore, most direct bitcoin investors choose to open an account with a crypto trading exchange such as Coinbase and Binance.

Investors have the option of hot storage, which refers to a cryptocurrency wallet that is connected to the Internet. They’re easy to set up, free, and easy to use, but susceptible to hackers and technical vulnerabilities. 

With cold storage, the crypto wallet is not connected to the Internet (paper wallets, USB devices, CD’s, etc.). There is a cost associated with cold storage, and the crypto is less assessable, but it provides a greater level of security.  

Through bitcoin futures, investors speculate on bitcoin’s future price. Like other assets, bitcoin and other cryptocurrencies can experience huge daily price swings, which can make futures trading risky.  

ETFs are great for investors who want to diversify their investment portfolio and avoid the volatility associated with futures and closed-end funds. According to one study in the American Economic Review, the average closed-end fund is 64% more volatile than its assets. 

With a bitcoin ETF, the investor buys shares in any underlying fund whose goal is to mirror the performance of bitcoin. Some ETFs invest directly in bitcoin, providing investors with exposure to the world’s most popular and valuable cryptocurrency.

Investing in Cryptocurrency: Bitcoin ETFs

If you’re looking to invest in bitcoin, consider one of the world’s first bitcoin ETFs, Evolve’s Bitcoin ETF (EBIT ETF). EBIT ETF provides investors with a simple and efficient way to access the price of physical bitcoin through a secure investment solution. For more information on this fund, visit https://evolveetfs.com/ebit/.

For a more diversified cryptocurrency investment solution, consider the Evolve Cryptocurrencies ETF (TSX: ETC), Canada’s first multi-crypto ETF. ETC ETF is designed to be a one ticket solution to cryptocurrency exposure. It is market cap weighted and rebalanced monthly. It currently holds Bitcoin (TSX: EBIT) and Ether (TSX: ETHR) but as regulators approve other crypto ETFs, they may be added as well. For more information on this fund, visit https://evolveetfs.com/etc/.

To stay updated with insights on investing in bitcoin and updates on related investment products, sign up for our weekly newsletter here.

 

The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.
Certain statements contained in this blog may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Evolve Funds undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.

 

Sign up for our newsletter

Disruptive and innovative trends are fundamentally transforming our world. Remain educated and be informed.