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Should you invest in Bitcoin? That depends on your motivation.
Theres a growing interest in Bitcoin investing. And its becoming easier than ever to buy major coins through mainstream cryptocurrency apps like Cash App and Robinhood. So its no surprise Bitcoin began a second surge in 2020 and has continued a meteoric rise in value for months.
Any serious investor would be remiss to ignore the flagship cryptocurrency altogether. But is it actually a good investment? That depends on why youâ€™re buying in.
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Good reasons to buy Bitcoin
Depending on your financial situation, these could be sound reasons to put some money into Bitcoin.
1. You want to invest money you can afford to lose
Regardless of our budgets, we all have an amount of money in mind that we can afford to lose without it having a major impact on daily life or long-term financial goals.
If youâ€™re risk-tolerant, you might put that money into investments for the chance to see it grow -- knowing youâ€™re also OK if it shrinks. Crypto values are volatile, even for a mainstay like Bitcoin. That means there are periodic major upswings, but you also have to be able to weather losing money if the value swings down.
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2. You want to use it to buy things
You might want to buy Bitcoin to use as currency (as opposed to an investment). For example, you might make purchases through platforms that trade in crypto or offer better prices when you pay with crypto. If you need to make a purchase or send money internationally, you might find Bitcoin offers a more favorable exchange rate than USD.
3. You value decentralization of currency
Depending on where you live and your history with economies around the world, you might be wary of government-regulated currencies and central banks.
Because of its volatility, cryptocurrency isnâ€™t the perfect solution to things like hyperinflation or government corruption that put citizensâ€™ money at risk. But you might decide itâ€™s a more fitting place for some of your assets than traditional financial institutions.
Bad reasons to buy Bitcoin
On the other hand, you may not want to buy Bitcoin if either of these is your main motivation.
1. You want to get rich
We tend to mostly hear about Bitcoin in the news when the value of the currency skyrockets.
Those stories -- and the lack of attention to equally dramatic drops in the coinâ€™s value -- make the investment a magnet for anyone who hopes to get rich quickly without effort.
However, thereâ€™s no guarantee of riches with any investment, least of all with an unregulated asset thatâ€™s younger than most TikTok stars. Itâ€™s true that the currency has increased significantly in value overall since its inception, but with just 12 years of market history to draw on, no reasonable expert can make a prediction about the long-term prospects for this investment. If your goal is growth, your money is probably safer with traditional stock brokers -- where the market has more than 100 years to back up its reliability for long-term gains.
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2. You think itâ€™s a safe store of value
Many financial experts laud Bitcoin as a way to protect your money from inflation over time. The argument is that cryptocurrency isnâ€™t affected by government actions -- like printing too much money or geopolitical conflicts -- that can decrease the value of regular, government-issued currencies.
But cryptocurrency is subject to major market swings based on demand and speculation. Compared with USD, this poses a more significant risk to the value of your wealth than government actions.
Should you buy Bitcoin?
Bitcoin can be a worthwhile investment if you approach it with reasonable expectations and allocate your money cautiously.
Before buying Bitcoin, make sure your basic finances are on solid ground. That means having enough money to cover your usual expenses -- plus three to six months worth of savings in your emergency fund. Its also a good idea to contribute to a retirement account. Bitcoin wonâ€™t guarantee you the headline-grabbing riches itâ€™s famous for, so secure your own financial future first.
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About the Author
Dana Sitar (@danasitar) has been writing and editing since 2011, covering personal finance, careers, and digital media.
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