Bitcoins first got the attention of investors in 2013, and since then more and more people have become intrigued by this strange new type of currency. Indeed, most people who use Bitcoins think of them as an investment, at least to a certain degree. But what is it about Bitcoin that makes it appealing to investors? The answer lies in the unique way this famous cryptocurrency is released.
Understanding Bitcoin as an investment
Unlike traditional fiat currencies, Bitcoin (BTC) is released periodically in predetermined quantities which gradually decrease; this is known in economics as a deflationary scale. When the Bitcoin invention published, the intention was to have a finite number of Bitcoins in circulation. This is achieved by halving the number of Bitcoins released at certain intervals, until one day no more of them will be “minted” again.
Why is this interesting to investors? Well, any commodity whose value is based on supply and demand becomes more valuable as supply decreases and/or demand increases. Bitcoin investors are wagering that the demand for Bitcoins will increase faster than the supply, and even that demand will continue to grow after the supply has been essentially cut off.
Bitcoin investment volatility
Bitcoin is still quite new as a concept, let alone an investment product. It is still in a stage where its value can be quite volatile, although less so than in previous years. In late 2013 and early 2014, BTC experienced some huge price swings. The one that most likely grabbed the attention of most investors occurred in November and December of 2013, when the value of Bitcoin skyrocketed from around $200 to over $1100 in less than one month. Come mid-December, it had dropped down to just over $500, still much higher than where it had previously been.
These days, the price of BTC tends to fluctuate around $400. Year to date, the lowest closing price was $360 in mid-January 2016, and the highest was about $467 in late April.