Bitcoin Explained: Why Is It Worth So Much Money?
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Do you follow Bitcoin? At the start of December, the price of the cryptocurrency rocketed up to over $19,000 per coin. Early investors with nerves of steel now have portfolios worth thousands, if not millions of dollars.

But the question on everyone’s lips is this: is it too late for me to invest in Bitcoin?

The price of an individual Bitcoin plowed through previous records, almost hitting the magical $20,000 level for the first time. At this point, buying a whole Bitcoin is simply beyond the means of most people. But that doesn’t mean you shouldn’t bother at all When Is the Safest Time to Invest in Cryptocurrency? When Is the Safest Time to Invest in Cryptocurrency? There will always be risk when "investing" in cryptocurrency. However, that risk can be managed by heeding these principles. Read More . Consider the following.

Limited Supply

The Bitcoin total supply limit is 21 million coins. Of those 21 million coins, some four million are already considered irretrievably lost Why Your Crypto Coin Is Not as Secure as You Think Why Your Crypto Coin Is Not as Secure as You Think Bitcoin continues to hit new highs. Cryptocurrency newcomer Ethereum threatens to explode into its own bubble. Interest in blockchain, mining, and cryptocurrency is at an all-time high. So why are cryptocurrency enthusiasts under threat? Read More (thrown away, willfully destroyed, held on encrypted drives with lost passwords, and so on).

bitcoin explained should you buy

Bitcoin creator Satoshi Nakamoto is mooted to have mined 1 million Bitcoin (a cool $19 billion at the recent $19,000 high) before publicizing the blockchain. There are also several people known to hold huge amounts of Bitcoin, and I’m sure more than a few governments have substantial holdings too.

According to career investor Ronnie Moas, there are probably “between 3-5 million Bitcoin” in actual circulation. That number does increase incrementally as miners “release” more Bitcoin. But that is still only 12.5 coins per block, and the vast majority now go to mining pools.

Bitcoin is a scarce resource, then. Another factor of consideration is the sheer number of users. Between Q3 2014 and Q3 2017, the number of Blockchain wallet users rose from 1.9 million to 14.7 million. And given the enormous leaps observed in December, it is fair to say that the overall number of Bitcoin users will have risen further.

All in all, it means more users competing for less Bitcoin — and we all know what that means for prices.

More Investors Incoming

The number of people investing Bitcoin is rising too.

Exact numbers are extremely difficult to arrive at, though. Some estimates peg the number of users to the number of wallets. Using the bitinfocharts website, we can break down Bitcoin distribution by wallet address.

Check out the table below. We can see that there are around 13.7 million wallets holding less than 0.001 BTC, and two holding between 100,000 to 1,000,000 (they actually hold 127k and 119k, and are the wallets for two crypto-exchanges). That aside, this table tells us that there are nearly 25 million active wallets.

bitcoin explained should you buy

A more recent University of Cambridge study [PDF] estimates that there are between 2.9 to 5.8 million active cryptocurrency users, with the vast majority using Bitcoin. The study also estimates there to be between 5.8 million and 11.5 million “active” wallets.

The biggest change, however, is the recent introduction of Wall Street to the Bitcoin trading environment. The Chicago Board Options Exchange (CBOE) added Bitcoin futures to their trading options on Sunday, December 10. The price immediately soared by over 25 percent, causing a temporary trading halt, as well as crashing the CBOE website due to demand (a mini-DDoS of sorts).

The combination of Bitcoin and Wall Street trading will introduce a significant number of individuals to cryptocurrencies.

SMS Bitcoin

But it isn’t just Wall Street that has climbed aboard the Bitcoin hype-train. There are a number of blockchain startups How Bitcoin's Blockchain Is Making the World More Secure How Bitcoin's Blockchain Is Making the World More Secure Bitcoin's greatest legacy will always be its blockchain, and this magnificent piece of technology is set to revolutionize the world in ways we always thought improbable... until now. Read More that will bring banking facilities to the previously unbanked 3 Blockchain Credit Agencies Changing Our Relationship With Money 3 Blockchain Credit Agencies Changing Our Relationship With Money Credit agencies are relics of the past, dinosaurs prone to abuse, fraud, and identity theft. It's time to talk about the technology that will stop another Equifax-style loss of data taking place: blockchain. Read More . These services will bring credit opportunities to those otherwise unable to obtain financing solutions. Furthermore, several startups are attempting to sell and trade Bitcoin via SMS. While only 30 percent of the world have consistent access to the internet, SMS is ubiquitous Say Goodbye to SMS: The Best Google Hangouts Alternatives Say Goodbye to SMS: The Best Google Hangouts Alternatives On May 22, 2017, Google Hangouts will lose SMS integration. Here's how to prepare for that day. Read More in almost every country.

The SMS Bitcoin services are targeting the African continent as a major untapped Bitcoin marketplace. Residents of countries with repressive governments or societal unrest also present opportunities for Bitcoin (and other cryptocurrencies) to protect wealth.

Stability

Bitcoin is infamously volatile. The price volatility is a major contributor to Bitcoin and other cryptos’ derision as a serious investment. While the introduction of Bitcoin futures to the CBOE caused an immediate 25 percent price spike, there is hope that the influence of Wall Street trading will have a calming effect on the overall price volatility of Bitcoin. In turn, this will allow other cryptocurrencies (commonly referred to as altcoins) to gain traction.

bitcoin explained should you buy

Financial Predictions

What will the Bitcoin price be in one year? $20K? $50K? Even more than that? It all depends on what you read. Here are five Bitcoin price predictions from a range of individuals.

  • Saxo Bank: $60,000 in 2018, before crashing back to $1,000 before 2019
  • John McAfee: $1,000,000 by 2020
  • James Altucher: $1,000,000 by 2020
  • Winklevoss twins: $152,000, unspecified date
  • Masterluc: (legendary crypto-trader) $40,000-$110,000 by 2019

Quite the range of predictions, but one thing is sure: Bitcoin will continue to rise for at least another year, if not two. As with all investments, knowing when to bow out is part of the problem. And the whales (those holding a significant amount of Bitcoin) always have the drop on the rest of populace.

As it stands, Bitcoin is already a top-30 world currency, with a current market capitalization of over $250 billion. It is widely expected to surpass the $1 trillion mark before 2020. A vast increase, but this would move the Bitcoin price toward the Winklevoss twins’ per-coin estimate.

bitcoin explained should you buy

Overall Awareness

Overall Awareness ties into the “more investors incoming” section but needs a few words of its own. The hype surrounding Bitcoin makes it feel like everyone is at it. Your grandma, the postman, your dentist — everyone. In fact, nothing could be further from the truth. Check out this absolutely non-scientific graph.

bitcoin explained should you buy

Bitcoin is generating an enormous amount of interest and has a huge market capitalization, but global adoption rates are still below 1 percent of the population. That’s right. And even 1 percent estimates are shaky. Consider the University of Cambridge study we looked at earlier. Even at the maximum estimate of 11 million active wallets, that’s only roughly 0.14 percent of the global population.

We are still at the tip of the global awareness and uptake iceberg. At most, we are just entering the “public awareness” phase. Public awareness increases, mania and FUD skyrocket, and greed and delusion set in. The Bitcoin price will continue to rise dramatically throughout this time until something spooks the market — and the capitulation begins.

So, Should I Invest?

I’m not a financial organization. Nor am I in any way qualified to give investment advice The Best Reddit Personal Finance Tips You Should Use The Best Reddit Personal Finance Tips You Should Use We've gone through the personal finance sub-reddits to find the best pieces of financial wisdom out there and help you learn from others' experience. Read More . I invest in and trade small amounts of Bitcoin and other altcoins.

My advice is simple: do your research, do not believe everything you read, and do not invest money you cannot afford to lose.

What do you think about the future of Bitcoin after reading this? Will you invest in Bitcoin? Share your thoughts in the comments.

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  1. Kate
    January 9, 2018 at 8:10 pm

    Here's the most important question: what are the miners of Bitcoin exchanging them for? Cash? Doesn't that imply that they consider it more desirable? Also, it's important to understand the difference between investing and speculating. If you don't know, stay away from Bitcoin.

  2. A Baraka
    January 4, 2018 at 7:01 pm

    Thanks for the great article.
    I'd appreciate it if you write an article about: how to safely trade in concurrency online. If any one wants to start investing in it, how?

  3. ayy
    December 28, 2017 at 5:47 pm

    thanks

  4. JustChill
    December 20, 2017 at 4:19 pm

    What is the title of your post ? and your answer is to do our own research....wow well played!

    • Gavin
      December 20, 2017 at 5:00 pm

      I am not a financial adviser and as stated in the article only invest small amounts of money that I cannot afford to lose. Should you invest in Bitcoin? If you can afford to lose the money, buy some in a dip and hope that it increases. Investigate the many altcoins and find ones that you believe have a bright future. Start with the top 10-20 coins by market cap and read what they do that differs from Bitcoin.

      If you're looking for a simple yes or no answer AND you don't want to do any research of your own (as your comment suggests), you're going to lose money, simple as. Only you can make financial decisions regarding your situation.

      Thanks for reading and commenting, good luck!

  5. JustChill
    December 20, 2017 at 4:18 pm

    What is the title of your article? and the answer to it is - do your research...wow