What to consider before buying a whole Bitcoin

The price of bitcoin, the world’s largest cryptocurrency is repeating in 2020 the dizzying surge of 2017 where it posted a record of $20,000.

On Tuesday, the cryptocurrency reached $19,400, a more than 4 percent growth from the $18,364.12 it recorded the day before. It is the first time since 18 December 2017 the market has closed above $19,000. It also means that cryptocurrency has closed 8 consecutive days above $17,000. The previous record was 4 days. Also, the volume traded as of Tuesday was $51,469,565,009 up from $42,741,112,308 traded the previous day. That is the highest daily volume since 29 October 2020.

Importantly, experts now see a clear path for bitcoin to reach $20,000.

“Bitcoin going $20,000 by year-end,” Jim Cramer, founder of The Street, a business media and investing platform, said on Tuesday. “It is not too late for bitcoin… a great alternative to gold, which I have always believed in.”

For Nigerian investors, the surge to above $19,000 means they will need over N9 million to purchase one whole bitcoin. While the country has been plunged into a second recession, it is still a big market for cryptocurrency operators both locally and around the world.

“This bitcoin bull run is not just for institutions. Our (retail) volumes in South Africa, Malaysia, Nigeria, and Indonesia all trebled over last month and at all-time highs,” Marcus Swanepoel, CEO of Luno said on Wednesday. “Emerging markets consumers are voting with their money and they’re ready for a better financial system.”

BusinessDay reported that investors who bought one whole bitcoin at a little above $6,000 (about N3 million) in March 2020 would have made over 200 percent of their investment at nearly N6 million in today’s price.

As a result of the surge, investors’ sentiment in recent times has stayed in the range of Extreme Greed driven more by fear of missing out. Hence it is pertinent to consider a few things before pressing the Buy button.

What is driving the market?

The surge is not happening in isolation, there are underlying causes which when understood would help an investor decide whether he or she has the appetite to take the risk.

According to experts, the major drivers of the 2020 surge are different from that of 2017. While the bull run in 2017 was more about making quick cash or profit, the 2020 run is driven by stronger fundamentals such as increasing institutional adoption and confidence in the entire cryptocurrency market. Galen Moore, an expert with Coindesk also noted that there are more ‘whale’ accounts with 1,000 or more bitcoin than was the case in 2017, and they have been growing in number with higher prices. Also important to note is that for the first time bitcoin and its closest rival Ether (ETH) are making recent highs together. This was not the case in 2017 where Ether’s record prices were playing catch up months after bitcoin hit its milestones.

Strong fundamentals or not, volatility still remains

This is an important point. Bitcoin in recent times has been looking like the global financial market in terms of volatility. Three years ago, the price of bitcoin at over $19,000 would have given a lot of discerning financial experts something to worry about due to the unusually high volatility the market was known for. Part of the problem then was regulators’ negative disposition towards the market.

Today, more regulators are taking a different approach to the market and serious discussions are ongoing concerning the regulation of the market. Countries like Nigeria are increasingly engaging the market to come up with an acceptable regulatory framework to guide the market. Also with the inclusion of bitcoin in many futures markets, also meant that some level of regulatory oversight has now been given to the market in order to protect investors.

Nevertheless, the market still changes every one or two minutes. In essence, buying at N9 million is not a guarantee that you are going to make N10 million. The market might decide to stall, drop, or push up.for instance the price of bitcoin dropped to within $16,000 on Thursday morning and went back up thirty minutes later to $17,120 on the Luno exchange.

In any case, ensure you are investing money you are willing to lose or you have the patience to wait for the market to rise.

The green and red lines

Olaleye Awe, a notable cryptocurrency trader, and teacher said the market could be tricky and pose a little inconvenience for first-time traders, especially if they do not understand the difference between the green and red lines on many cryptocurrency exchanges.

“Trading cryptocurrencies is a 24/7 market; every day of the year you can make money and you can also lose money,” says Awe who is popularly called ‘Prof Awe’. “It is important that you are aware of what the market can give you.”

The green line is an indication that the market is in a bull run. Prices at that range are most likely going at a high rate. Hence, should you decide to buy at a green line, you will only be buying the bitcoin at a high price. Whereas, the red line indicates that the market is bearish or prices are dropping either because demand is less and more investors are eager to sell. This is usually the point to buy.

You don’t have to buy a whole bitcoin

Bitcoin is divisible. It should be added that divisibility is one of the properties of any form of money, commodity, fiat, or cryptocurrency that makes something of use or value into exchangeable money. In order to exchange goods of varying values, money has to be broken down into smaller units. In order to adopt and encourage the practical usage and purchase of bitcoin as an everyday currency alternative, bitcoin divisibility is crucial.

A bitcoin can be divided down to 8 decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction. This makes bitcoin perfect for micropayments.
Opportunity to diversify

Bitcoin at N9 million may also be too high for many first time investors. It also presents an opportunity to diversify your portfolio in cryptocurrency. As earlier mentioned, Ether for the first is rising almost at the same as bitcoin for the first time. Diversifying also means you are expanding your profit spread. A drop in bitcoin would not fundamentally affect your investment so long as other altcoins are holding.

But diversifying the portfolio also comes with a lot of responsibility according to experts. It calls for a higher level of due diligence on each coin. Find out the people behind the coin, what is the premise of the coin? What is it created to solve? Can you verify that the solution is viable? How often are the activities created to improve and enhance the efficiency of the coin network?

Many experts advise that a new investor only invests in altcoins that are already known and used by other people. They are usually in the top class of the cryptocurrency markets.