With the bitcoin market cap (standing at over $1 trillion at the time of writing) now eclipsing that of Facebook, Tesla, and JPMorgan Chase, many UAE investors are understandably more curious to learn how to buy bitcoin in the UAE.
In this article, we consider what bitcoin is, why you should invest in it, and how to buy bitcoin in the UAE.
In essence, bitcoin is a decentralised digital currency that facilitates transactions without the need for a central intermediary.
Instead of a central government overseeing and keeping records of transactions (including details about the transacting parties), bitcoin transactions are stored on the blockchain network.
Here, buyers and sellers are represented by their public key (a series of codes) instead of their personal details, and transactions are collectively recorded on the blockchain network by millions of computers all over the world.
In addition to promoting anonymity, bitcoin removes many of the government-imposed regulations that make international payments cumbersome.
Apart from its ability to facilitate transactions between parties, bitcoin is also a good store of value due to its finite supply. Unlike fiat money, which the government can decide to print more of, leading to inflation, the supply of bitcoin is capped at 21 million BTC.
Since bitcoin is widely considered a good store of value, you can invest in it with the confidence that its value won’t dwindle based on supply inflation.
But why invest in bitcoin when other assets also have a good store of value?
The primary reason is that bitcoin has now increasingly been recognized as the “digital gold” by financial experts. Investors buy gold as a way to diversify their portfolio due to its near-zero correlation to the stock and bond market. Bitcoin has so far shown the same characteristic making it a good portfolio diversification tool.
The saying “don’t put your eggs in one basket” is a fundamental axiom in the investing world. Diversifying your investments is the best way to minimise risk and maximise returns. Instead of putting all your eggs in bitcoin, especially given its volatility, a better investment practice is to buy bitcoin as part of a portfolio that includes other assets like stocks, bonds, and REITs.
Apart from volatility, there are other downsides to bitcoin trading — losing your bitcoin wallet to hackers, high transaction fees, and the low liquidity of some exchanges.
A good way to eliminate all these is to buy bitcoin indirectly as an investment trust. An example of a bitcoin investment trust is the Grayscale Bitcoin Trust (GBTC). A share of GBTC corresponds to a certain value of bitcoin. At the time of writing, a share of GBTC is $42.78 and it corresponds to 0.000935707BTC.
What is the advantage of GTBC over direct purchase of bitcoin?
First, GTBC uses cold storage, which is safer than hot storage (the one bitcoin exchanges provide). Second, GTBC only charges an annual management fee of 2% instead of the per-trade transaction fees bitcoin exchanges charge (which can become substantial when your trade volume is high). Third, GTBC holds 46% of all the bitcoin held by publicly traded companies so liquidity will never be an issue. Fourth, with GTBC, you can make money both when bitcoin’s value is rising and when the demand for GBTC itself is rising.
Sarwa, an online financial advisor, provides a simple way to buy bitcoin as part of a portfolio and as an investment trust.
With Sarwa Bitcoin, you can add bitcoin to your investment portfolio (up to 5% of total portfolio value). Instead of purchasing bitcoin directly, Sarwa purchases it as an investment trust which means more security, less fees, greater liquidity, and an opportunity to earn a premium when the demand for GBTC increases.
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