Bitcoin's Longevity: A Wise Long-Term Investment?

Bitcoin is a highly debated topic in the financial world. It is a cryptocurrency, a digital currency built on blockchain technology, which enables secure peer-to-peer transactions without the need for a third party, such as a bank. As the most well-known and widely used cryptocurrency, Bitcoin has sparked interest from investors enticed by its soaring value and potential for high returns. However, its price volatility and lack of regulation make it a risky investment option. So, is Bitcoin a good long-term investment?

Bitcoin's volatility

The volatility of Bitcoin is due to its status as a decentralised currency, free from the control of any states or centralised power constellations. Its value is based purely on speculation and the shared illusion that it has value. This makes it a risky investment option, particularly for those who are risk-averse or looking for a stable, long-term investment.

However, some investors view Bitcoin's decentralised nature as a positive feature, believing in its potential as a store of value similar to gold. They also see it as a good hedge against inflation, as it is not subject to the same risks of hyperinflation as traditional currencies.

The future of Bitcoin is uncertain, and it could go either way. On the one hand, it may become the first truly global currency, with El Salvador already adopting it as legal tender. On the other hand, it could also collapse and lose all value.

The threat of hacking

Bitcoin's blockchain has never been hacked. However, individuals can still be hacked if they give out sensitive information, such as their private keys. It is also not uncommon for lesser-known exchanges to be hacked.

Cryptocurrency hacking has become a formidable threat, leading to billions of dollars in losses for crypto platforms and exposing vulnerabilities across the ecosystem. In 2022, crypto hacks stole a total of $3.8 billion across several exchanges, up from $3.3 billion in 2021. In 2023, funds stolen from crypto platforms decreased by approximately 54.3% to $1.7 billion, though the number of individual hacking incidents rose from 219 in 2022 to 231 in 2023.

There are several types of cryptocurrency hacks, and understanding the differences between them can help owners keep their money safe. Here are some of the most common types of crypto crimes:

• Bridge attacks: Cybercriminals target currency as it is being transferred between different blockchains. Moving crypto from one blockchain to another involves a transfer protocol known as cross-chain bridges, which are easy for hackers to target by inserting bugs into the bridge code or using cryptographic keys.
• Wallet hacks: Crypto owners use hot or cold wallets to store, manage, and transfer their cryptocurrency. Hot wallets are always connected to the internet and are, therefore, vulnerable to hacks. It is possible for cybercriminals to exploit network vulnerabilities to break into a crypto wallet and steal its contents.
• Coin exchange hacks: Some crypto owners choose to manage their cryptocurrency with online coin exchanges, which hold huge stores of cryptocurrency, making them prime targets for hackers. Hackers use different types of attacks, such as phishing and social engineering, to steal coins stored in the exchange's hot wallets.

To prevent crypto exchange hacks, it is crucial to take safety precautions. Here are some tips to protect your bitcoins:

• Get a cold wallet, which stores your bitcoins offline, making it harder for hackers to target.
• Use a VPN to encrypt all online traffic, offering an added layer of security against attackers.
• Protect your devices by using anti-virus software or firewalls and ensure all software is always up to date.
• Enforce basic password security by regularly updating passwords, creating strong passwords, or using password managers.
• Try multi-factor authentication, which requires several layers of verification to access crypto wallets, adding an extra layer of protection.

Despite the threat of hacking, Bitcoin has become a household name as institutions and governments develop ways to serve their customers' growing demand for exposure. In 2021, El Salvador became the first country in the world to make Bitcoin a legal tender, and other countries are considering following suit.

Bitcoin as a global reserve currency

Bitcoin's potential to become a global reserve currency is a hotly debated topic. A reserve currency is typically held by central banks and other financial institutions as part of their foreign exchange reserves. It is often a widely accepted, stable currency that is used in international trade and financial transactions.

For Bitcoin to be deemed a reserve currency, it must demonstrate stability, widespread acceptance, and reliability as a store of value. Bitcoin's decentralised nature, limited supply, and global accessibility are all factors that could make it a good candidate for a global reserve currency. Its decentralised blockchain network ensures transparency, security, and protection against fraud, and its scarcity creates an environment where it can act as a store of value, much like gold.

However, Bitcoin's notorious price volatility and regulatory uncertainties are significant challenges to its potential as a reserve currency. Central banks and governments, which play a crucial role in determining reserve currencies, may be hesitant to embrace a decentralised cryptocurrency like Bitcoin due to concerns over control, stability, and monetary policy.

The future of Bitcoin as a global reserve currency is uncertain, but it has gained attention as a decentralised digital currency with a fixed supply. Its potential will depend on various factors, including widespread adoption, regulatory clarity, improved scalability, and increased stability.

The US dollar's falling value

Bitcoin is a highly volatile investment option. Its price volatility and the lack of regulation in the market make it a risky investment option. However, some individuals believe in the potential of Bitcoin as a decentralised currency and store of value, leading them to consider it a good long-term investment.

The US dollar, meanwhile, has been experiencing a period of decline. In November 2023, the US dollar sank to its lowest in over three months as investors anticipated a slowing of the country's economy and a potential rate cut by the first half of the year. The dollar index, which measures the currency's value against six major currencies, fell to 102.60, its lowest since mid-August.

The US dollar's decline can be attributed to several factors, including:

• Interest Rates: The US Federal Reserve's decision to cut interest rates can impact the value of the dollar. When the Fed cuts interest rates, it can lead to a weakening of the dollar as investors seek higher returns in other markets.
• Economic Growth: Slowing economic growth in the US compared to other countries can also contribute to the dollar's decline. If other countries offer more attractive economic conditions and interest rates, investors may shift their funds to those markets, reducing the demand for the dollar.
• Inflation: While the US has been experiencing inflationary pressures, the impact of these pressures has been less severe than anticipated. This can lead to a decrease in the value of the dollar as investors seek higher returns elsewhere.
• Central Bank Policies: The policies of central banks, including the US Federal Reserve, play a significant role in currency valuations. When central banks in other countries, such as Japan, raise interest rates while the Fed cuts rates, it can put pressure on the dollar and cause it to depreciate in value relative to other currencies.
• Government Deficit Spending: The increasing government deficit spending in the US can impact the value of the dollar. As the US Treasury issues more debt, foreign investors may become less attracted to US Treasury securities, leading to a decline in the demand for the dollar.

The falling value of the US dollar has implications for investors, particularly those with overseas investments. A stronger dollar can result in lower net returns for US investors in overseas markets, while a weaker dollar can enhance their net returns. Additionally, a stronger dollar can make US-based multinational companies less competitive in the global market, as their products become more expensive for foreign buyers.

Bitcoin's decentralised nature

Bitcoin is a decentralised digital currency and payment system, allowing online transactions to be made peer-to-peer without centralised mediation. It was conceived in 2008 as an attempt to alleviate trust in governments and banks, which were at a low ebb following the financial crisis.

Decentralisation allows for natural human interaction, enabling people to function without the constraints of hierarchies. It removes third-party intermediation and enables an alternative, decentralised organisation of society. It allows for your bank to be in your pocket, for trade to be directly negotiated between you and your chosen partner, and for governance to be an array of choices independent of geography.

Decentralisation also allows individuals to develop faster and more efficiently in a natural way. For instance, what many consider to be the Dark Ages was actually a time when Europe developed the quickest. After the fall of the Roman Empire, separate states and kingdoms were left to themselves, developing what has been called "competitive pluralism". In small, autonomous entities, the kingdoms progressed faster and in competition against one another, soon amassing enough power and resources to colonise other parts of the world.

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