Why You Shouldn't Invest In Bitcoin Just Yet

Bitcoin has been on fire in recent years, but there are several reasons why you should not invest in it. Here are some of the most important ones:

- It's hard to value: Unlike shares or bonds, there's no reliable way to determine the real value of Bitcoin.

- It's more about speculating than investing: Success depends entirely on timing. Such a dramatically unstable market price puts Bitcoin closer to speculation than investing.

- It presents some serious risks: Bitcoin has been troubled by regulatory issues, with mining being illegal in several jurisdictions and the banking sector reluctant to exchange it for legal currency.

- It's not a legal tender: The trading of Bitcoin is considered illegal in some countries, such as India.

- It's prone to illegal activities: As Bitcoin transactions are not regulated by the government and are anonymous, they are prone to terrorist usage and illegal activities.

- It's not regulated: If something goes wrong, the lack of regulation means there is little protection for investors.

- It's extremely volatile: Cryptocurrencies are known for their extreme price fluctuations, with values swinging 10% or more in a single day.

- It has a short track record: With a short history, it is challenging to predict the future of Bitcoin and other cryptocurrencies.

- It has a utility problem: With a limited number of tokens in circulation and a small group of investors holding a large percentage, there is minimal utility.

- It has a low barrier to entry: The blockchain technology that Bitcoin is based on is not unique, and other businesses could one-up it.

Bitcoin is not an investment

When you buy a share of stock, you own part of that company. If you buy a share of Textron, for example, you become a part-owner of all their assets. As the company sells more products, the value of the company increases, and so does the value of your stock. They may also pay you dividends from their profits.

Now, what happens when a company you've invested in goes bankrupt? In most cases, another company will step in and buy it, or smaller companies will buy up its subsidiaries. In the worst-case scenario, a team of bankruptcy lawyers will sell off all the company's assets, and as a shareholder, you'll be entitled to a portion of the proceeds.

Cryptocurrency Valuation

So, what do you get when you buy cryptocurrency? Unlike with stocks, you don't own any factories, office buildings, product inventory, or sales contracts. All you own is a string of numbers on the blockchain that identifies the coin and the address of your cryptocurrency wallet.

The price of any given cryptocurrency is based entirely on the value perceived by people buying it. For traders, there's little difference between Bitcoin, Ethereum, Dogecoin, or any other form of crypto. Each is just a string of numbers on a blockchain.

The biggest reason is that Bitcoin was the first cryptocurrency. It's had more time to receive attention and generate hype, which makes all the difference.

For example, on Bitcoin Pizza Day, someone spent 10,000 BTC on two pizzas. Back then, all those Bitcoins were only worth about $40. Today, they'd be worth $620,000,000! This mentality has created an information-age gold rush, complete with booms, busts, victories, and scams.

It's important to understand that very little about Bitcoin itself has changed over the years. The Bitcoin network has grown more efficient at processing transactions, but the currency still isn't backed by anything tangible.

The only reason the price is so high right now is that many people are hoping that the price will jump even higher, allowing them to sell their Bitcoins for a profit.

The Risks of Cryptocurrency

Bitcoin and other cryptocurrencies have experienced eye-watering drops, triggered by events such as cryptocurrency exchange hacks, government regulation changes, and new types of cryptocurrency stealing the spotlight. These drops can happen overnight and have resulted in losses as high as 80% to 90%.

When a stock drops in price, it's usually because something has gone wrong with the company. Shareholders can pay attention to what's happening and potentially sell their shares in anticipation of bad news. Cryptocurrency doesn't offer the same level of protection.

When these gigantic cryptocurrency drops occur, owners can lose hundreds of millions or even billions of dollars in value within a matter of hours, with little to no hope of recovering their losses. Since Bitcoins aren't backed by any real value-holding assets, owners who sell simply lose out.

Speculation vs. Investment

This is why it's said that cryptocurrency is not an investment. When you trade crypto, you're speculating rather than investing. Speculation differs from investing because you don't have a reliable way to predict whether an asset's price will go up or down, and you aren't protected from losses.

The value of Bitcoin is impossible to determine

Bitcoin is a risky investment. Its value is impossible to determine, and it is highly volatile. If you are considering investing in Bitcoin, you should only do so if you have a high-risk tolerance, are in a strong financial position, and can afford to lose some or all of your investment.

Bitcoin's Value is Volatile

Bitcoin's value is extremely volatile. For example, in 2013, its value tumbled 80% and took three years to recover. There were also drops of 50% or more in 2021 and 2022. In 2024, its price soared to more than $75,000 on one exchange after the Securities and Exchange Commission approved several Bitcoin Spot ETFs, resulting from increased demand.

Supply and Demand

Bitcoin's price is primarily affected by its supply and the market's demand. Bitcoin's supply is limited—there is a finite number of bitcoins, and the final coins are projected to be mined by 2140. The Bitcoin block reward is reduced by half about every four years, which is called a halving. This adds to the demand for Bitcoin.

Competition

Although Bitcoin is the most well-known cryptocurrency, hundreds of other tokens compete for investment dollars. As of 2024, Bitcoin dominates trading in cryptocurrency markets, but its dominance has decreased over time. In 2017, it accounted for more than 80% of the overall market capitalization, but by 2024, that share was down to less than 55%.

Regulation

Bitcoin is not issued or regulated by a central government and is not subject to governmental monetary policies. Its price is very responsive to regulatory developments. For example, in 2021, the price of Bitcoin surged to $69,000 a few weeks after the SEC approved the first U.S. bitcoin-linked ETF. However, a few months later, the price had dropped to around $40,000.

Media and News

Media and news coverage work for and against Bitcoin's price. Good news for cryptocurrency investors tends to send its price up, while bad news sends it down. Social media postings from well-known people or celebrities can also affect how investors feel about Bitcoin, which impacts its price.

Investor Sentiment

Investor sentiment is one of the most significant factors affecting cryptocurrency prices. Investors can cause prices to rise when they become too excited about an asset, and they can also cause prices to drop when they panic about possible losses.

Store of Value

One of the most popular arguments used to claim that Bitcoin has intrinsic value is that it stores value. During the COVID-19 pandemic, some investors turned to Bitcoin and experienced tremendous gains.

No Intrinsic Value

There are many arguments against the possibility of Bitcoin's intrinsic value. Here are some of them:

• Bitcoin is a convertible currency: It must be converted to a government-backed currency to be used, even in countries where it is recognized as legal tender.
• Nothing has fundamental value: According to the subjective theory of value, no intrinsic or underlying value can be assigned to Bitcoin—only the value placed on it by those who purchase or use it is relevant.
• A Bitcoin collapse will not shake the economy: Bitcoin is not a legal tender, and it is not used by enough people to affect the economy if it were to fail.
• Bitcoin is not a company: Stocks and bonds are issued by companies or governments to raise funding, but Bitcoin does not do this, so there is no value behind it.

There may be no value in Bitcoin

Bitcoin is a risky investment with high volatility, and it is generally recommended only for those with a high-risk tolerance, strong financial position, and capacity to absorb losses. Its value is derived from its restricted supply and increasing demand, but it is unclear if there is any intrinsic value.

Scarcity and Utility

Bitcoin's value is often justified by its scarcity, with a set cap of 21 million bitcoins. This limited supply is said to make it more desirable than other assets, even gold. However, critics argue that Bitcoin lacks intrinsic value, and its worth is based on the "greater fool theory", relying on finding buyers at higher prices.

High Volatility

Bitcoin's value is highly volatile, making it difficult to predict its future worth. Its price is influenced by supply, demand, fear, and greed. While it has the potential for high returns, there is also the possibility of significant losses.

Lack of Regulation and Consumer Protection

Bitcoin and other cryptocurrencies lack the same regulations and consumer protections as traditional financial products. They are not insured by the Securities Investor Protection Corporation, and consumer protections vary across exchanges.

Security and Anonymity Concerns

Bitcoin transactions are irreversible, and there have been instances of people losing access to their wallets and credentials. Additionally, while Bitcoin was designed to offer anonymity, there have been concerns about the security and traceability of transactions, with researchers claiming they can track transactions to users' other online accounts.

Energy Consumption and Environmental Impact

The energy consumption required for Bitcoin transactions is massive, comparable to that of entire countries. This has raised concerns about the environmental impact of Bitcoin and the associated electronic waste from specialised mining operations.

In conclusion, while Bitcoin has attributes similar to traditional currencies, its value is highly speculative, and there are concerns about its lack of regulation, security, and environmental impact. As such, it may not be a suitable investment for those seeking stable, low-risk opportunities.

Bitcoin is not a secure investment

Bitcoin is a risky investment with high volatility, and it is generally recommended only if you have a high-risk tolerance, are in a strong financial position, and can afford to lose some or all of your investment.

Volatility

Bitcoin's exponential growth and ability to maintain its title as the most valuable cryptocurrency can mask the fact that its ascent has not been linear. For example, someone who bought Bitcoin in 2013 would have seen their investment tumble by 80% and would not have been above water for another three years. There have also been drops of 50% or more in 2021 and 2022.

Security

Bitcoin disguises your personal information, but the address of your crypto wallet is publicly available. This means that hackers could use web trackers and cookies to find more information about the transactions that could lead them to your private information and data.

Additionally, your cryptocurrency is only as secure as the crypto wallet you keep it in. If you lose your wallet password or someone else gets a hold of it, you will lose your Bitcoin.

Investor Protections

Bitcoin and other cryptocurrency investments are not protected by insurance from the Securities Investor Protection Corp. (SIPC). At regular brokerages, the agency protects against the loss of securities and cash in brokerage accounts containing up to $500,000, with a $250,000 cash limit.

Furthermore, crypto exchanges do not have circuit breakers, which automatically pause trading when prices dive too quickly. Crypto markets also trade 24/7, and dramatic dips can happen at any time.

Regulatory Uncertainty

There is currently no overarching regulatory framework for cryptocurrencies, such as how the Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC) regulate securities or the Federal Reserve and the FDIC regulate banks.

In 2021, China, the world's second-biggest economy, effectively made it illegal for citizens to mine or hold any cryptocurrency. If other countries follow suit, Bitcoin holders could be in hot water.

Bitcoin is not a widely accepted form of payment

One of the main reasons for this is the volatility of Bitcoin. In 2022, its value fell by more than 75% from its all-time high. This volatility, combined with the fact that crypto exchanges lack basic consumer protections, makes Bitcoin a risky investment.

Another issue is the slow transaction speed of Bitcoin. It can only process around 8 transactions per second, whereas a payment platform like Visa would need to process 50-60,000 transactions per second. This means that Bitcoin is not practical for everyday transactions and will only ever be used for large purchases.

Some experts believe that Bitcoin will never be widely accepted as a form of payment unless it becomes more stable, regulated, and secure. Others think that it will become more common in the future, but it will take at least another decade for this to happen.

Overall, while it is possible to spend Bitcoin in some places, it is not a widely accepted form of payment due to its volatility, slow transaction speed, and lack of consumer protections.

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