Should you Invest in Bitcoin?
Bitcoin, often called digital gold, has seen its price skyrocket from around $66,000 in early November to $99,000 today—a 33% increase in just a few weeks. It’s no wonder this surge tempts anyone with a gambler’s heart. But before diving in, it’s important to understand: What is Bitcoin? What’s driving this massive price increase? And most importantly, what are you really getting into when you invest in Bitcoin?
What Is Bitcoin?
Let’s start with the basics: what exactly is Bitcoin?
Bitcoin is a digital, decentralized currency created in 2009 by an anonymous figure known as Satoshi Nakamoto. Unlike traditional currencies like the US dollar, euro, or Swiss franc, Bitcoin operates without a central authority or control by any government or bank.
At first glance, the idea of a currency that isn’t centrally regulated might seem risky. But it’s precisely this control by central banks that Bitcoin advocates criticize about the fiat money system.
Let’s take a quick step back: What exactly is fiat money, and how does our traditional currency system work?
Fiat money is the currency we all know and use in our daily lives—US dollars, euros, Swiss francs. The value of fiat money is not based on the equivalent value of the physical commodity (mostly paper and copper-nickel alloys) but on our trust in central banks and governments.
Central banks, in turn, manage the value of fiat currencies by controlling key factors like interest rates and the money supply. In recent years, these institutions have adopted expansionary monetary policies, lowering interest rates and increasing the money supply to stimulate economic growth—especially after the financial crisis and during the COVID-19 pandemic. While this can boost economies, it also fuels inflation.
And this is precisely where the advocates of Bitcoin and their financial system come in. Unlike fiat money, Bitcoin is decentralized—it isn’t controlled by any central bank. Its total supply is capped at 21 million coins (fixed supply), which means it can’t be printed endlessly like traditional currencies, making it inherently resistant to inflation.
As of now, approximately 19.1 million Bitcoins have been mined. The remaining coins will be gradually released, with the final Bitcoin expected to be mined around the year 2140.
How Are Bitcoins Created?
Let’s take a quick detour to explore how Bitcoins are being brought to life. In technical terms, this process is called mining. Essentially, Bitcoins are mined—similar to how gold is mined. The comparison to gold is no coincidence; both Bitcoin and gold have a limited supply.
However, unlike gold, Bitcoin isn’t mined from physical locations like underground mines. Instead, it’s created through computational power. Imagine mining Bitcoin as solving a complex puzzle. Miners—the individuals or companies that create new Bitcoins—use specialized hardware to solve intricate mathematical problems. This process is known as Proof of Work (PoW). When a miner successfully solves the puzzle, they’re rewarded with a newly created block, which is then added to the blockchain.
For those unfamiliar, the blockchain is the technology behind Bitcoin. It’s essentially a distributed database that isn’t stored in one centralized location. Instead, it’s spread across a network of nodes (computers), making it decentralized and highly secure.
Mining Bitcoin requires immense computing power, which in turn demands a significant amount of energy. This energy is necessary not only to create new Bitcoins but also to maintain and secure the entire network.
As of 2024, the year-to-date energy consumption for Bitcoin is estimated to be around 140 terawatt-hours (TWh). Since Bitcoin’s inception, the cumulative energy usage has reached approximately 639 TWh (according to the Cambridge Bitcoin Electricity Consumption Index).
To put that into perspective, 140 TWh is roughly a quarter of Germany’s annual electricity consumption, or about two and a half times the yearly electricity usage of Switzerland.
Naturally, this level of energy consumption is a cause for concern among climate activists. However, Bitcoin enthusiasts are quick to point out that approximately 60% of the energy used for mining comes from renewable sources.
What Are Bitcoins Used For?
Let’s take a closer look. What is Bitcoin good for, and how can it be used? Spoiler alert: this is where it gets interesting!
Bitcoin primarily functions as a store of value with built-in protection against inflation. As mentioned before, Bitcoin is a currency with a limited supply, unlike traditional currencies that can be printed endlessly. This scarcity was a core principle behind Bitcoin's creation, driven by a mistrust of centralized institutions and a desire to hedge against the inflation of government-backed currencies.
It is also used as a legitimate payment method. Surprised? You might be! Bitcoin isn’t just a speculative asset—it’s increasingly being accepted as a payment method by both online and offline retailers. There are even Bitcoin-linked credit cards that let you pay for everyday items, like a loaf of bread from your local bakery, directly in Bitcoin.
Another major advantage of Bitcoin is its decentralized nature, meaning it operates without intermediaries like banks or central authorities. This allows for direct peer-to-peer transfers that are often faster and come with lower fees than traditional bank transactions.
Of course, there’s a flip side. Critics argue that a currency operating outside centralized control could facilitate illicit activities. However, research shows that criminal activity involving Bitcoin is no higher than in traditional financial markets. Plus, since Bitcoin transactions are traceable, authorities have successfully identified and apprehended offenders in the past.
In any case, the ability to send money directly with minimal fees is especially beneficial for immigrants who financially support their families back home. This concept ties into the broader idea of financial inclusion. Approximately one-third of the world’s population lacks access to formal banking services. These individuals, often referred to as unbanked, do not have bank accounts and could gain access to the financial system through Bitcoin. With Bitcoin, people can transfer money affordably without a bank account—all they need is an internet connection.
So, Should You Invest in Bitcoin?
Now, back to the original question: Should you invest in Bitcoin?
Our Bitcoin expert, Eric Strauss, who played a key role in developing the content for this article here at UMushroom, has this to say:
“Bitcoin belongs in a balanced portfolio.”
Eric Strauss, Bitcoin Expert at UMushroom
“Bitcoin isn’t a casino,” he explains. “You need to be fully aware of the risks. Bitcoin is highly volatile, and you have to be prepared to hold through market swings—sometimes for years. But you don’t need to worry about losing your money entirely.”
Eric points out that there’s a lot of speculation around 2025, which marks the next year in Bitcoin’s four-year cycle. “Historically, Bitcoin has seen significant price increases every four years. The driving force behind this is the so-called halving, an event that occurs every four years. During a halving, the reward for miners who create and add new blocks is cut in half. This reduces the supply of new Bitcoins, leading to scarcity, which typically drives up prices and triggers a bull market.”
Some analysts predict that Bitcoin’s tipping point could reach $200,000 in the future (source: Forbes). Jan van Eck, CEO of VanEck, even suggests it could climb to $300,000—half the market capitalization of gold—driven by rising demand for financial independence and inflation protection.
Whether these forecasts are purely speculative remains to be seen. However, Eric believes that Bitcoin has earned its place in a well-diversified portfolio with a suggested allocation of about 2-5%.
How Can You Invest in Bitcoin?
If you’re wondering how to invest in Bitcoin, the good news is that there are several ways to get started—and no, you don’t need to have $99,000 (the current market price for 1 Bitcoin) to participate.
One option is to purchase Bitcoin directly through a cryptocurrency exchange or broker, such as Swissquote. And here’s the cool part: you don’t have to buy an entire Bitcoin. Instead, you can purchase a fraction of one, known as Satoshis (named after the pseudonym of Bitcoin’s creator, Satoshi Nakamoto). A Satoshi is the smallest unit of Bitcoin, equal to one hundred millionth of a Bitcoin. In other words: 1 Bitcoin = 100,000,000 Satoshis. This means you can start investing in Bitcoins with small amounts.
Another option is to invest in an ETF that tracks the price of Bitcoin or explore other financial instruments like derivatives.
And now, to answer a related question: can you sell your Bitcoin and convert it back into traditional currencies? Absolutely! The process is just like buying—you simply sell your Bitcoin on a cryptocurrency exchange or through a broker.
Eric, a passionate Bitcoin enthusiast, finds this amusing because, in his words:
“Nobody would ever give up their Bitcoins unless they absolutely had to.”
At this point, it’s easy to see why many are tempted to take the plunge and make their first Bitcoin investment. Eric's insights are undeniably compelling. Yet, the question still lingers—what if it’s all just one giant bubble? One thing is certain: the topic continues to captivate.
For those looking to stay informed, be sure to follow our CryptoCompact section for the latest updates and insights.
