With the price of Bitcoin currently over $20,000, more and more investors are now embracing cryptocurrency. However, the same question that Bitcoin enthusiasts have asked since Bitcoin’s inception is still relevant. Is Bitcoin a good investment?
Here are four things you should consider before investing in Bitcoin.
1. The Price of Bitcoin Is Extremely Volatile
The price of Bitcoin can spike from $10,000 to over $15,000 and back to $5000, It owns you no explanation. The problem with Bitcoin is that you never know how the prices will work. Bitcoin is a relatively new currency and the honest truth is that the currency’s market could crash at any moment and your investments could go down with it. If you decide to invest in Bitcoin, remember to buy low and sell high and keep in mind that there is always the possibility that the low may not ever get higher.
2. You Will Have to Pay Taxes on Bitcoin
Yes, bitcoin is taxable
The IRS began issuing guidance on taxation of Bitcoin in March 2014.
Bitcoin is not in any way exempted from taxation and the type of taxes that you will have to pay are extremely complicated. If you are solely an investor, paying taxes will be relatively easy because you will only have to pay the capital gains and losses of all the Bitcoin that you have bought and sold. If you are a miner or you earn Bitcoin through games and other means, the taxes become much more challenging. Not only will you have to pay taxes on capital gains, but you will also have to pay taxes on Bitcoin as if they were a paper currency and you might have to pay self-employment taxes on that earned Bitcoin as well.
3. Bitcoin is not Anonymous
Contrary to popular belief, Bitcoin is not Anonymous but Pseudonymous
All Bitcoin transactions are recorded publicly and permanently on the network. However, the identity of the user behind an address remains unknown until information is revealed during a purchase or in any circumstance
4. Not backed or regulated by any government
This stands in stark contrast to the dollar, yuan, pound, and other forms of currency used around the globe. So, many people view Bitcoin as something similar to Monopoly money, because it is neither a fiat currency nor is it based on something of tangible value like gold. In other words, a bitcoin is worth exactly what people perceive its value to be. While, in a sense, this applies to any currency, the value of a bitcoin is much more volatile than other forms of money because of its chaotic nature.