Bitcoin’s dominance is in part due to it being the first cryptocurrency and the oldest, and partly due to its rarity from the finite volume in circulation. It’s also become synonymous and interchangeable with the term crypto, thus increasing its prominence in mainstream consciousness.
Bitcoin’s dominance is also in part due to the inherent trading pairs within the crypto ecosystem. To buy one of the many thousands of different cryptocurrencies, you cannot just purchase them with fiat money or fiat currencies (dollars and pounds) even with any kind of payment system. You need to purchase a base coin like Bitcoin or Ethereum first and then trade these base coins for some of the other altcoins. Conversely, if you wanted to sell your altcoins for normal money, you would have to convert them back to the base coins first. Similarly, if you wanted to swap or trade an altcoin like Litecoin for another like Polkadot you would need to use an exchange that supports that trade pair, otherwise you would need to convert your Litecoin to Bitcoin first before converting to Polkadot. Therefore, Bitcoin maintains a stronghold in the crypto world.
Big spikes in the market fluctuation of Bitcoin have a huge impact on the crypto market in general and can signal a bull or bear market. Bull markets describe the market during periods of price increases, and bear markets during periods of price decreases. The most recent bull run occurred in 2021 culminating when the Bitcoin price soared to over £50,000.00 for the first time. It then crashed in Q1 of 2022 to lows of £25,000.00 before hovering around the £30,000.00 mark. Some analysts are already suggesting that we are now in a bear market and proclaiming an altcoin season – a term to describe when the top altcoins outperform Bitcoin over a sustained period of time.
Risk Vs. Reward
Investing in crypto comes with risks, and you should always do your own research before investing. There is always a possibility of losing your investment due to the volatile fluctuations of trading prices. There’s also the real possibility that you can lose your private key or it is stolen by hackers. Without your key, you cannot retrieve your digital currency or assets, and there is no intermediary authority to reverse fraudulent activity. Despite these risks, more and more people are buying into bitcoin as well as other cryptocurrencies, looking to get ahead of the curve, and invest in their future.
The price volatility of Bitcoin, and all coins, makes it very difficult to know when to buy, which can deter new investors. Timing the market is an important factor to consider, but perhaps not as important as actually being in the market or not. Many investors try to minimize the impact of volatility by using a strategy called dollar-cost averaging (DCA) - buying small amounts at regular intervals over an extended period of time regardless of what the price is, rather than investing a large lump sum all at once. The benefits of this strategy are to ‘hedge your bets’ and minimize any potential losses on any specific purchase in the long term by averaging out the cost of your investments. In the meantime, if prices take a downturn, you can keep investing and buy low, whilst holding out for an upturn and reap the rewards in the longer term if prices soar in the future.
How to buy Bitcoin?
Purchasing Bitcoin is very straightforward, all you need is a smartphone or a computer, and a wallet to send and receive bitcoin. Think of a wallet like an email account, a place to send and receive emails. It is made up of two keys which are just very long passwords of random letters and numbers. One key is private and known only to you so that you can gain access to and send bitcoin. The second key is public, which you give out to others so that they can send their Bitcoin to you (using Bitcoin's network). Read my article An Intro To Crypto for more on Bitcoin and crypto. Start investing in Bitcoin now with just a few clicks, by registering for an exchange account on the most secure crypto exchange in the UK.
Look out for the third and final installment of this mini-series coming soon, which will explore smart contract blockchains and make a comparison between Bitcoin and Ethereum (Ethereum Foundation).
By: Alvin Michael
The views and opinions expressed herein are the author’s and are not intended to be used as advice to trade on the crypto markets.
Part 1 | Part 2 | Part 3