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The cryptocurrency giant Bitcoin has been on a magnificent journey for a few years. The global pandemic did not have a detrimental impact on its value, and it has grown massively ever since. The question that arises is that is it worth investing?
Like any investment, it has certain risks. Below are 5 reasons that you should consider before investing in bitcoin.
1) High Volatility
Bitcoin value swings wildly according to demand. This year, on the 13th of March, it hit its all-time high, touching the $61,000 mark. Just two days later, it dropped back to $55,000 as many investors started to sell it. The fluctuations can lead to a heavy loss or healthy profit. It depends on the severity of the change.
It is also the reason why it is generally unpopular as a means of payment in the market. For instance, if any equipment is purchased for 1 BTC and a week later, the buyer requests a refund. Should 1 BTC be returned given the increase in valuation? Or a new valuation be returned? It can get quite confusing for transactions and is therefore discouraged.
2) Fraud and Theft
Blockchain usage in bitcoin makes it hard to hack, but it is not an exception to scams and frauds. Most beginners are prone to such dangers due to a lack of knowledge. There have been cases recorded where the crypto trading platform is suddenly closed, and investors lose all their investments. The investments or the balance is not insured or regulated either. Therefore the lost bitcoin cannot be retrieved.
3) No physical existence
Bitcoin is not a coin, neither an asset or a commodity. It is tangible and only exists on your computer. It’s just a code that is worth fortunes. There is no actual money stored in the servers. It also costs lots of power for transactions to complete. Often the mining cost exceeds the profit.
4) Damaged Reputation
Bitcoin has a history of being used for illegal trades. It was used on the dark web for the trading of unlawful items such as drugs and weapons. Not only it is confined to goods, but has been demanded as ransom.
It was shut down by the FBI in the year 2013, due to a surge in criminal activities surrounding bitcoin. Investors have been careful when deciding on investing in bitcoin, and rightly so. The government has no firm stance on cryptocurrencies and can even ban them at any time.
5) Limited Use
Very few merchants use bitcoins for transactions, and it could take years before it becomes wildly accepted. Many countries have not adopted bitcoin yet, and some have entirely banned it. It is not relied upon as a means of payment due to its violent swings and is not wildly accepted. Bitcoin has a maximum supply of 21 million coins. Therefore the supply is limited.
Final thoughts
Do not let yourself get caught up in the hype around bitcoin. You should only invest how much you are willing to lose, and the investment poses a high risk. Even the experts are not sure about its future which makes its survival uncertain. The new technology can reap lots of profit or heavy loss. It all depends on sheer luck.
