Bitcoin's soaring popularity and value since its inception in 2009 is a curious case for many investors. Like the Internet boom, cryptocurrency also took only a few years to become a mainstream topic, and it is growing now more than ever. Many investors, as well as professionals, have made cryptocurrency investment a part of their portfolio. But Bitcoin and other cryptocurrencies, unlike fiat currency, aren't a physical asset. These digital currencies do not follow a centralised system and don't rely on banks. Their transactions happen through a decentralised network of computers.
So, are we investing in anything at all? Or are we just speculating some returns that may happen only in the far future?
In 2018, business magnate Warren Buffett had publicly denounced Bitcoin as not an investment. Three years since, the world has seen a lot happening on the cryptocurrency front. On one hand, there are business giants investing in these digital assets. On the other hand, crypto scams have left wreckage behind them.
We should perhaps stop asking whether buying Bitcoin is speculation. Instead, let us focus on the simple rules to follow in the cryptocurrency market for the ones who would like to turn it into a real investment.
1) Long-term or short-term profits
Speculation is when we are engaging in a risky transaction, hoping for a short-term profit. Instead of being a speculator, become a real investor by focussing on long-term goals. It's a thumb rule not to invest an amount that we can't bear losing. Cryptocurrency risks are as real as they can get. So, we should weigh the risks and goals that suit us best.
2) Cryptocurrency quality
It's better to stay away from flashy and risky projects while buying coins. The promise of a quick profit may often leave us hoping for returns for eternity. But if we want to really invest in a coin, we should check the red flags. Profits may not be as quick, but it'll save us in the long run. Bitcoin price in India has increased manifold since its inception.
3) Diversify holdings
Don't put all the eggs in the same basket. Diversify the portfolio, so that, in case a coin fails in the market, all isn't lost. That's better than stocking up on one cryptocurrency and speculating that things get better. Real investment is when we prudently choose a safe ground in a volatile market.
Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.