Bitcoin: Worth an Investment in 2020?

Bitcoin is one of the top-performing assets in 2020. Here’s what you should know if you’re thinking of making an investment.

New virtual money concept, Gold Bitcoins

Image source: Getty Images

It’s hard to believe that Bitcoin has already been around for more than a decade. The controversial digital currency was created back in 2008 and released in 2009, and since then has made several investors millionaires many times over.

When the idea first spread, many were quick to dismiss it. Even over the years, as it has risen dramatically in value, many investors and experts have dismissed it as simply a bubble.

It certainly has the makings of a bubble, yet each time the volatile digital currency crashes in value, the next rally seems to always set a new high.

So far in 2020, Bitcoin is up a whopping 150%, and it’s not even close to one of the top-performing cryptocurrencies. But with consistent gains that are beating the market, it’s hard to keep ignoring the digital currency, and slowly but surely, many big-name investors have been gaining exposure.

This has led many retail investors to consider investing in Bitcoin or wonder if it’s even worth it. But before we can decide if we want to invest in Bitcoin, we first need to understand what it does and why it has value.

Why does Bitcoin have value?

Like anything else, the main reason Bitcoin has value is because people believe it does. Since it was introduced over a decade ago, it has paved the way for other digital currencies.

And with the strong belief that digital currencies are the future and Bitcoin is the biggest name in the industry; naturally, it attracts a tonne of investment.

It’s also widely owned because it’s the main cryptocurrency trading pair. To buy most other cryptocurrencies, no matter how small, you almost always need to own Bitcoin first. It’s like the U.S. dollar in the crypto world in that it can essentially be exchanged for any cryptocurrency out there.

Another reason that Bitcoin is seeing a major increase in value is because it’s treated similarly to gold. As a matter of fact, some have referred to it as digital gold because it’s a great hedge against inflation.

Bitcoin performance

The risks you should know

Clearly, Bitcoin’s past performance is impressive. However, you should be aware that there are significant risks, especially with a coin whose value is so volatile. First, Bitcoin isn’t regulated at all, and there is a slight learning curve. If you send coin to the wrong wallet by accident, for example, it’s unlike sending an e-transfer to the wrong email. The money is gone. Furthermore, sending money at all can be quite costly.

Another risk with owning Bitcoin is there are now several other cryptocurrencies that do the same job as Bitcoin but do it better and cheaper. Right now, Bitcoin is the most popular because of its brand. It’s unclear how long that may last.

The last risk to know is that with the rise of new crypto technology, Bitcoin does very little. It was a brilliant way to prove that blockchain works, and investors still use it to trade, but as an actual currency, several options are much better.

Should you buy Bitcoin as an investment?

More and more investors are gaining some exposure to Bitcoin or other cryptocurrencies. This is what’s been driving the rapid appreciation as of late. So while you may want to add some to your portfolio, too, you definitely shouldn’t have a large amount of your portfolio in cryptocurrency.

There are also certain Bitcoin stocks you could buy instead. For example, you could gain exposure through a stock like Hive Blockchain Technologies. Hive derives most of its income from mining Bitcoin, a higher risk business model. Owning Bitcoin stocks would be advantageous if you planned to do it in a TFSA to save on the tax.

However, most investors would likely be better off just to buy Bitcoin, which is increasingly becoming easier with the mass adoption that’s driving the prices up. Companies like PayPal are now making it extremely easy to buy Bitcoin, which on top of making it easy for you to buy, is one of the main catalysts of the coin’s soaring prices today.

So if you’ve been thinking about gaining exposure to Bitcoin, I’d take a small position and be careful, but I wouldn’t wait any longer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Tech Stocks

man sitting in front of 3 screens programming
Tech Stocks

2 Growth Stocks to Hold for the Next 10 Years

Are you interested in growth stocks? Here are two picks to hold for the next 10 years!

Read more »

investment research
Tech Stocks

2 Hot Stocks to Buy and Hold Until You Retire

Are you looking for stocks to buy and hold until you retire? Here are two top picks!

Read more »

tsx today
Tech Stocks

TSX Today: What to Watch for in Stocks on Wednesday, September 27

An overnight bullish movement in oil and gas prices could lift TSX energy stocks at the open today.

Read more »

Dots over the earth connecting the world
Tech Stocks

1 Magnificent TSX Stock That Turned $10,000 Into $163,000

Constellation Software has crushed the broader markets in the past decade. Here's why I remain bullish on the TSX tech…

Read more »

Question marks in a pile
Tech Stocks

Up 57% in 2023, Is BlackBerry Stock Still a Buy?

Here are some key reasons I don’t find BB stock overvalued, despite its solid 57% year-to-date gains.

Read more »

crypto, chart, stocks
Tech Stocks

CGI Stock: Outperforming Among Falling Tech Stocks

CGI stock (TSX:GIB.A) has blasted past 52-week highs, on top of long-term growth that's remained stable throughout the decades.

Read more »

grow money, wealth build
Tech Stocks

How to Turn Your TFSA Into a Gold Mine Starting With $6,500

These two growth stocks can help super-charge your TFSA savings.

Read more »

man sitting in front of 3 screens programming
Tech Stocks

Shopify Stock or Microsoft Shares: Better Buy for the AI Revolution?

Shopify (TSX:SHOP) and Microsoft (NASDAQ:MSFT) are two of the most impressive growth stocks to watch, as tech slips further from…

Read more »