Bitcoin has been building an online following for awhile because it offers something unique that investors want. Some people also like the idea that you can generate cash essentially from nowhere, letting a gadget the size of your toaster run 24/7 for a shot at a few bucks. It’s also appealing to investors looking for big gains on a risky new currency, or a way for online shoppers to anonymously buy just about anything under the sun.
Coinbase, a regulated Bitcoin exchange, officially came online just last week, lending a little bit more credibility to the cutting-edge currency. Over the course of 2013 Bitcoin made huge gains, piling on nearly 6500% in value in order to trade as high as $1250 per coin. The exchange rate has since fallen to what the market sees as a more realistic valuation, averaging about $230 per coin. However, the rise in Bitcoin prices turned a lot of nerdy hobbyists into overnight millionaires.
The way that Bitcoin itself is set up, and the fact that it’s only recently been seen as a reportable asset, makes the exact number of Bitcoin millionaires a bit of a mystery. A few investors, like Jered Kenna and Charlie Shrem have come forward, giving out interviews to big business websites like Bloomberg after price jumps in 2013. Kenna cleared a cool $1,400,000 on his 5,000 Bitcoins when the priced surged over $280 in April of 2013.
Other Bitcoin success stories, like Roger Ver, have made their money by approaching the cryptocurrency in a more traditional way. Ver helped to set up BitInstant, and unofficial exchange that was built to help fill the gap left behind when Mt. Gox went belly up. Since becoming involved in the currency as a consultant, he has gone on to drop his holdings in the Yen and US Dollar in order to focus on Bitcoin exclusively, to the tune of millions of dollars in profits.
Getting in the Game
If you’re interested in making an investment in Bitcoins, there are a few things you need to know. The first is that Bitcoin is volatile, with no national GDP to prop it up, the currency is known to swing wildly especially when there is movement in the market because of outside forces. Since Bitcoin doesn’t rely on any one nation to set its intrinsic value, to a certain extent it looks to worldwide events — for better or worse. European banking woes are just as likely to cause swings in the value of Bitcoin, as is improving American domestic housing demand. It may well be the first truly international currency.
Another key fact to keep in mind before you jump into Bitcoin is the fact that a huge amount is sitting dormant. The anonymous inventor behind Bitcoin holds hundreds of millions of dollars worth of the currency in an account that’s never been touched. If, or when, that money starts to move it could have huge consequences for the market value of Bitcoin. Nobody knows exactly who’s holding it or what they plan to do with it, but those untouched coins could be used as big leverage to move the whole market.
A Good Idea with a Bad Reputation
The bottom line is that Bitcoin is still mostly seen as a way to anonymously buy black market goods or as a high-stakes investment opportunity. Legitimate currency traders might be looking on with a scowl, but Bitcoin has already demonstrated that it has the potential to make millionaires out of its early adopters. Still, its been tainted by its use as the de facto currency behind online drug marketplace Silk Road.
Following in Bitcoin’s Financial Footsteps
Bitcoin, for better or worse, has been so successful that it’s opened the door for a bunch of other copycat currencies. Other cryptobucks are using a similar model, with some small updates, in order to give consumers more options when it comes to spending money anonymously. Both Dogecoin, named after a popular meme, and Litecoin are widely used in some of the same places where Bitcoin is accepted, and both tend to be more affordable and stable.
Bitcoin’s potential for huge gains, its inherent anonymity, and the buying power that it grants its users, all mean that this currency won’t be going away anytime soon. Whether or not that means you should get involved depends mostly on your tolerance for risk in the name of profits..