You have probably been hearing a lot about Bitcoin these days given how popular it has become. It has gained so much popularity, and a lot of people are getting very enthusiastic about the prospect of making money by investing in it. But have you ever given any thought to the nature of the asset that bitcoin truly is?
Many of you probably know that Bitcoin is a cryptocurrency. But do you understand what it implies? Bitcoin is undeniably a form of currency; however, unlike other currencies, it is not backed by the legal tender of any nation’s central bank. You can still buy or sell things using Bitcoin, but because of a lack of legal tender, the other party has the right to refuse it.
The other thing you need to know is that most currencies derive their value from the fact that they are backed by a government. But this is not the case with Bitcoin. Its worth is derived only from the faith of individuals who trade in it. However, why do individuals put their faith in it? The fact that it is a cryptocurrency, which is widely regarded as a cutting-edge kind of financial technology, is certainly a compelling argument in its favour. Cryptos are believed to be a revolutionary technology which is going to be of daily use thing in future. That is why people are putting their trust in it in hopes that in future the value of investments will rise many times.
But we all should know that any investment is always subject to market risk. Market risk is always there in all kinds of investments and therefore it can’t be fully eliminated. It is the best idea to allocate only a reasonable amount of money to any particular asset. Understand the asset and the risks involved and then only commit your money.