Bitcoin has surged into the financial spotlight, reaching unprecedented highs and capturing the attention of investors worldwide. With its value climbing past $100,000 in 2024, fueled by regulatory milestones and high-profile political endorsements, many are wondering: Should I invest in Bitcoin? To answer this, we turn to David Yermack, a finance professor at NYU Stern School of Business and a long-time educator on cryptocurrency since 2014. His insights offer a balanced perspective on the risks, rewards, and realities of entering the world of digital assets.
Understanding Bitcoin: The Basics
Bitcoin is a decentralized digital currency that operates without intermediaries like banks. Created in 2008 by an anonymous figure or group using the pseudonym Satoshi Nakamoto, it was originally designed to enable peer-to-peer transactions without reliance on central institutions.
Today, Bitcoin functions more as a speculative investment than a daily payment method. It’s bought and sold through various channels:
- Cryptocurrency exchanges (e.g., Coinbase, Binance, Kraken)
- Stockbrokers like Robinhood
- Bitcoin ATMs
- Exchange-traded funds (ETFs)
- Money transfer apps
- Wallet software
- Direct mining
Once acquired, Bitcoin is stored in a digital wallet—a secure software or hardware device containing a unique string of letters and numbers known as public and private keys. These wallets can be hosted online, on personal devices, or offline for enhanced security.
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Unlike traditional stock markets that operate during business hours, crypto trading never sleeps—it runs 24/7, 365 days a year. This constant availability appeals to global investors seeking flexibility and real-time market access.
How Is Bitcoin Valued?
The value of Bitcoin is driven by three core factors: supply, demand, and market sentiment.
- Fixed Supply: There will only ever be 21 million Bitcoins mined. As of now, over 19 million are already in circulation. The final coin is projected to be mined around the year 2140.
- Mining Process: Every 10 minutes, miners around the world compete to validate transactions by solving complex computational puzzles. The winner adds a new block to the blockchain and receives a block reward—currently 3/10 of a Bitcoin (after the 2024 halving event).
- Scarcity & Speculation: Because supply is capped, price increases often follow rising demand. However, unlike stocks or bonds, Bitcoin doesn’t generate cash flow or dividends. Its value is purely speculative, much like gold—or even fiat currencies such as the U.S. dollar.
“With Bitcoin, it's purely speculative value,” says Yermack. “And this may be unnerving to you, but I would point out that the U.S. dollar has exactly the same foundation.”
Potential Risks of Investing in Bitcoin
While the upside potential is alluring, Bitcoin comes with significant risks that every investor should understand.
Extreme Volatility
Bitcoin’s price swings are legendary. Since its inception in 2009, it has experienced multiple crashes where its value dropped by over 50% within months:
- In November 2021: ~$65,000
- By June 2022: ~$19,000 (a 71% decline)
Such volatility makes it unsuitable for risk-averse investors or those relying on stable returns.
Irreversible Transactions
Because Bitcoin operates on a decentralized network, there’s no central authority to reverse transactions. If you send funds to the wrong address, lose your private key, or fall victim to theft, recovery is nearly impossible.
The Federal Trade Commission (FTC) warns that once crypto is sent, it’s gone—no customer service hotline can help.
Cybersecurity Threats
While the Bitcoin network itself has never been hacked in over 16 years—a testament to its robustness—individual users remain vulnerable. Scams such as phishing attacks, fake exchanges, and malware targeting private keys are rampant.
Common threats include:
- Fake wallet apps
- Impersonation scams (“Give me crypto to unlock your account”)
- Pyramid schemes disguised as investment opportunities
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Yermack notes: “These are just recycling ideas that you already see in real life—chain letters, pyramid schemes. You shouldn’t take strangers’ words at face value.”
Potential Benefits of Bitcoin Investment
Despite the risks, Bitcoin offers compelling advantages for informed investors.
Regulatory Milestones Boost Legitimacy
In 2024, the U.S. Securities and Exchange Commission (SEC) approved spot Bitcoin ETFs, allowing major financial institutions to offer regulated crypto investment products. This move significantly increased institutional participation and mainstream credibility.
Decentralized Security
The underlying blockchain technology ensures transparency and immutability. Every transaction is permanently recorded on a public ledger accessible to anyone. This decentralization removes single points of failure and reduces systemic risk.
As Yermack emphasizes: “The Bitcoin network has never been hacked in 16 years now. It’s widely regarded as the safest, most robust computer network ever.”
Hedge Against Economic Uncertainty?
Some investors view Bitcoin as a digital safe haven, akin to gold during times of geopolitical tension or inflation. Events like Brexit saw short-term spikes in Bitcoin demand as investors sought alternatives to traditional currencies.
However, Yermack cautions: “There’s no real evidence that this is actually true.” Unlike gold, Bitcoin lacks centuries of historical stability and isn’t widely used as collateral or reserve assets by central banks.
Should You Invest in Bitcoin?
Ultimately, the decision depends on your risk tolerance and financial goals.
Yermack offers clear guidance:
“Nobody should be investing in this who can't afford to lose their investment.”
He recommends treating cryptocurrency like any other asset class—diversified and proportionate to your overall portfolio.
His rule of thumb?
Allocate about 2% of your total investable wealth to crypto.
This reflects Bitcoin’s current share of global investable assets and balances exposure without overcommitting. Going beyond that level means accepting higher risk—with no guarantee of returns.
“If you're taking any more risk than that,” he warns, “be prepared to lose your money.”
Frequently Asked Questions (FAQ)
Q: Can Bitcoin be converted back to cash?
A: Yes. You can sell Bitcoin on cryptocurrency exchanges and transfer the proceeds to your bank account in fiat currency like USD.
Q: Is Bitcoin legal?
A: Bitcoin is legal in most countries, including the U.S., though regulations vary. Always comply with local tax and reporting requirements.
Q: What happens if I lose my crypto wallet password?
A: Losing your private key typically means permanent loss of access. There is no recovery option—this underscores the importance of secure backup practices.
Q: How does the 2% investment rule work in practice?
A: If your total investment portfolio is worth $100,000, allocate no more than $2,000 to crypto. This keeps exposure manageable while allowing participation in potential gains.
Q: Will all Bitcoins be mined by 2140?
A: Yes. Due to the programmed halving events every four years, block rewards decrease over time until mining becomes negligible around 2140.
Q: Are Bitcoin ETFs safer than buying directly?
A: ETFs offer regulated exposure without managing private keys, reducing technical risk—but they still carry market volatility.
Final Thoughts
Bitcoin represents one of the most transformative innovations in modern finance—but it’s not without peril. Its blend of technological brilliance, speculative nature, and regulatory evolution demands careful consideration.
For those intrigued by its potential, start small, stay informed, and prioritize security. Whether it's part of a long-term strategy or a calculated bet on digital disruption, knowledge remains your best investment.
👉 Start your crypto journey with confidence—secure your first digital asset today.