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3 Lessons All Investors Can Learn From Bitcoin

By Katie Brockman - Jun 5, 2021 at 8:00AM

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Even if you're not buying cryptocurrency, there are ways that Bitcoin can make you a smarter investor.

Bitcoin ( BTC -3.24% ) has had one heck of a ride over the past few months. After reaching a record high of around $65,000 per token back in April, the cryptocurrency's price has plummeted around 40% since its peak.

Whether you've invested in cryptocurrency or not, it's been impossible to ignore the crypto phenomenon. You don't have to invest in Bitcoin to learn a thing or two from its most recent roller coaster of ups and downs, and these three lessons can help make you a better investor.

Young person sitting at a table writing.

Image source: Getty Images.

1. Short-term gains often come at a cost

Investing in the stock market is playing the long game, but it can be tempting to try to "get rich quick" with the latest trending investment. It's also easy to look back at Bitcoin's meteoric rise and think about how much money you would have made if you'd invested a few years ago.

However, getting rich overnight is nearly impossible, and Bitcoin's dramatic downturn proves that short-term gains often don't last.

This doesn't necessarily mean that Bitcoin is a bad investment or that it won't see positive returns over the long run. But if you buy Bitcoin (or any investment) in hopes of getting rich quickly, that plan could backfire.

Any investment that sees exponential gains in a short amount of time is likely to experience drastic downturns as well. And that volatility makes it challenging to earn a significant amount of money quickly.

2. Even the most promising investments can be dangerous

Cryptocurrency supporters believe the technology can change the world, and celebrities like Elon Musk have heavily promoted crypto on social media. But just because an investment seems promising on the surface doesn't mean it's safe.

There is a chance that Bitcoin could have an enormous impact on our currency system. It could become mainstream someday, and those who invested early may reap the rewards. But cryptocurrency could just as easily fail, in which case you might lose all the money you invest.

Regardless of how promising Bitcoin may seem, it's still a highly speculative investment. Cryptocurrency in general is still a relatively new concept, and nobody knows whether it will become widely accepted someday or not. That uncertainty makes Bitcoin a high-risk investment, and it could potentially be dangerous if you invest without fully understanding the risks involved.

3. Timing the market can be incredibly difficult

Bitcoin has seen its fair share of ups and downs over the years, and the most recent downturn is nothing new for the cryptocurrency. This year alone, Bitcoin has experienced multiple steep drops in price.

Bitcoin Price Chart

Bitcoin Price data by YCharts

With any volatile investment, it can be tempting to try to time the market -- or buy when prices are low, then sell when prices reach their peak. That may sound like a good idea on paper, but in practice, it's nearly impossible to effectively time the market.

Stock prices, in general, are unpredictable. But cryptocurrency is a whole new level of unpredictability. Bitcoin is famous for its volatility, and its price rises and falls on a dime. Trying to predict when its price will change is incredibly difficult, even for experts in the crypto market. And if you buy or sell at the wrong time, you could end up losing money.

Is Bitcoin right for you?

No matter where you choose to invest, it's best to pick solid investments and hold them for the long term. If you've done your homework and believe Bitcoin is here to stay, you may decide to invest in it -- just make sure you're willing to hold on to this investment through the ups and downs.

Even if crypto isn't for you, there are plenty of other options out there. By keeping these lessons in mind, you're more likely to choose investments that will thrive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

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