The Risks Of Bitcoin: Is It A Dumb Investment?

Bitcoin is a cryptocurrency that has been around since 2009. It is a decentralised system that allows two people to do transactions without the need for trust or a network between them. It is not controlled by any government or bank and is therefore censorship resistant. It is also open-source and free for anyone to use.

Bitcoin is not an investment, but a speculative instrument. It has no intrinsic value and is driven by the sole objective of selling it to someone else for more money in the future. It is not a stable store of value and is therefore not a useful currency. It is highly volatile and is prone to scams and fraud.

Bitcoin has been likened to gold, tulip bulbs, Beanie Babies, and rare baseball cards. It is also not widely accepted as a form of payment.

On the other hand, some people believe that Bitcoin is a good investment because it is a decentralised system that cannot be manipulated by governments or banks. It is also a good hedge against the stock market and hyperinflation. It is a new kind of currency for the digital era.

Bitcoin is not an investment

But what do you get when you buy cryptocurrency? All you own when you buy crypto is a string of numbers on the blockchain. Part of that string identifies the particular coin (or fraction thereof) that you own. The other part identifies the address of your cryptocurrency wallet, the date received that money, and the wallet it came from. That's it.

The price of any given coin is based entirely on the value perceived by people buying it. Unfortunately, for most cryptocurrencies, that valuation is skewed by a lot of baseless hype.

For a trader, there’s very little difference between Bitcoin, Ethereum, Dogecoin, or any other form of crypto. Each is just a string of numbers on a blockchain.

So why is Bitcoin worth so much more than the others? Arguably, the biggest reason is that Bitcoin was first. It’s had more time to receive attention (or generate hype) and that makes all the difference.

This mentality has created an information-age gold rush, including all of the booms, busts, victories, and scams that you’d expect.

It’s important to understand that very little about Bitcoin itself has changed in all this time. The Bitcoin network has grown capable of processing transactions a little more efficiently, but the currency mostly functions like it did in 2010. It’s still not backed by anything real.

The only reason the price is so high right now is that so many people are hoping that the price will jump even higher and they’ll be able to offload their Bitcoins on the next chump.

More than once during its climb to such lofty heights, Bitcoin has experienced eye-watering drops too. These drops were triggered by everything from major cryptocurrency exchanges getting hacked, to government regulation changes, to new types of cryptocurrency stealing the spotlight. These drops happened overnight and resulted in losses as high as 80 to 90 percent.

When a stock drops in price, it’s because something goes poorly with that company. Shareholders have the ability to pay attention to what’s happening and can potentially sell in anticipation of bad news. Cryptocurrency is not so kind.

When these gigantic cryptocurrency drops happened, owners lost hundreds of millions (or even billions) of dollars of value in a matter of hours. There may have been time for some of them to minimize their losses, but for most, there was no hope. Since those Bitcoins aren’t backed by any real value-holding assets, the owners who sold simply lost out.

This is why I say cryptocurrency is not an investment. When you attempt to trade in crypto, you aren’t investing, you’re speculating.

Speculation is different from investing because you don’t have a good way of predicting whether an asset’s price will go up or down, and you aren’t protected from the downside.

Bitcoin is a religion, not an investment

Global investor Mark Mobius has expressed his skepticism about cryptocurrencies, stating that they are a religion and not an investment. Mobius suggested that cryptocurrencies are not an investment option but a speculation tool used for fun. He maintained that stocks remain the perfect option for investment despite cash devaluation.

Bitcoin is not a currency

Bitcoin is a cryptocurrency, a decentralised virtual currency that uses blockchain technology to record transactions. It is not issued by a central authority, like a government or bank, and its value is not tied to any physical commodity.

Bitcoin's value is highly volatile. For example, in a 24-hour period between December 6 and 7, 2017, its value increased from under $12770 to $16583. In another four-day period, it lost almost $2000 in value. This volatility makes it difficult for merchants to price goods and services and for consumers to know the value of what they are exchanging.

Bitcoin also lacks legal tender status. In the US, Federal Reserve notes are designated as legal tender, but private entities can generally develop their own policies about acceptable tenders.

Bitcoin is also not widely accepted as a medium of exchange. It is not widely accepted by merchants, and some who did accept it, like Valve's Steam service, have stopped.

In addition, Bitcoin transactions are expensive, slow, and energy-intensive. Transaction fees can be as high as $20, and it can take up to an hour to receive six network confirmations, the standard for confirming a Bitcoin transaction. Each transaction also consumes a huge amount of electricity.

For these reasons, Bitcoin is not a currency.

Bitcoin is too volatile

Bitcoin is a highly volatile investment. Its value has fluctuated wildly since its inception, making it a risky asset to hold. Bitcoin's price is influenced by various factors, including media coverage, regulatory changes, and market sentiment. Its price can change drastically in a short period, making it challenging to predict its future value.

Bitcoin's extreme volatility can be attributed to its decentralised nature and the lack of regulatory oversight. Unlike traditional currencies, which are backed by central banks and governments, Bitcoin is not controlled by any central authority. This lack of regulation makes Bitcoin susceptible to market speculation and manipulation, leading to significant price swings.

Additionally, Bitcoin's limited supply and high transaction costs contribute to its volatility. The total number of Bitcoins that can ever be mined is capped at 21 million, creating a sense of scarcity. This artificial scarcity, combined with high transaction fees, can lead to sudden surges or drops in demand, further exacerbating price volatility.

The impact of volatility is twofold. On the one hand, it creates opportunities for short-term gains as traders can profit from price swings. On the other hand, it makes Bitcoin a risky long-term investment. The high volatility means that the price could drop significantly, resulting in substantial losses for investors.

Furthermore, Bitcoin's volatility has implications for its usability as a currency. A currency is typically characterised by stability, allowing buyers and sellers to set prices with confidence. However, Bitcoin's volatility makes it challenging to use as a medium of exchange, as its purchasing power can fluctuate rapidly. This volatility also discourages businesses from accepting Bitcoin as a form of payment, as it introduces uncertainty into their revenue streams.

While some argue that Bitcoin's volatility will decrease as it matures and gains wider adoption, it is essential to approach it with caution. The extreme price swings make it a speculative asset, and investors should be aware of the potential risks involved. As with any investment, it is crucial to conduct thorough research and carefully consider your risk tolerance before investing in Bitcoin or any other cryptocurrency.

Bitcoin is full of scams

• Romance scams - Scammers use dating apps to find victims, and then convince them to invest in Bitcoin. They may even pretend to be in a relationship with their victims.
• Pig butchering scams - Scammers befriend their victims, and then convince them to invest in Bitcoin. They may even offer to help them trade. Once the victim has invested, the scammer will find excuses to prevent them from withdrawing their money.
• Tech support scams - Scammers pretend to be tech support staff, and convince their victims that they need to invest in Bitcoin to fix a problem with their computer.
• Ransomware - Scammers gain access to their victim's computer, and encrypt their files. They then demand payment in Bitcoin to restore access.
• Phishing - Scammers send emails pretending to be from a legitimate company, and trick their victims into giving them their Bitcoin.
• Ponzi schemes - Scammers convince their victims to invest in Bitcoin, and then use their money to pay out fake profits to other investors.
• Fake exchanges - Scammers set up fake exchanges, and steal their victim's Bitcoin deposits.
• Fake wallets - Scammers trick their victims into downloading fake Bitcoin wallets, and steal their Bitcoin.
• Giveaway scams - Scammers pretend to be celebrities, and offer to give away Bitcoin to their followers.
• Blackmail - Scammers threaten to reveal embarrassing information about their victims unless they pay them in Bitcoin.

You don't need to speculate to reach your goals

Setting goals is a great way to reach your dreams. However, it is not enough to simply dream. You must also take action.

• Write down your goals: Putting your goals on paper helps to solidify your commitment to achieving them. It also helps to keep you focused, as you can refer back to your goals whenever needed.
• Set a deadline: Goals should be time-bound. Having a deadline will help to keep you motivated and on track.
• Create a plan: Break your goal down into smaller, achievable steps. This will make your goal seem less overwhelming and help you stay focused.
• Take action: Don't procrastinate! The first step is often the hardest, but it will get easier once you get started.
• Stay motivated: Keep your end goal in mind and remind yourself of why you are working towards it. Find sources of inspiration to help keep you motivated.
• Be accountable: Share your goals with a friend or mentor who can help keep you on track and provide support.
• Reflect and adjust: If you don't achieve your goal, don't be too hard on yourself. Reflect on what went well and what could be improved, and use that information to adjust your goal or your plan for achieving it.

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