The Risks Of Investing In Bitcoin : What You need to Know about Crypto Investment

Want the tips we use to make money from home?

Sign me up to receive more helpful tips about making more money for yourself, saving a lot of money to get rich and frugal living tips. Feeling inspired and would love more blog posts like these

Bitcoin can fairly be called one of the hottest investment commodities of 2018, even if it took us until last year to really start calling it a commodity. For the first several years of its existence bitcoin was viewed as an ascending (or struggling, depending on your point of view) currency alternative, meant for practical use and intended to replace fiat currency. In 2017 however as the cryptocurrency gained value simply via people buying in more consistently, the idea that it’s more an investment asset than it is functional money took hold. Now, we don’t look at bitcoin as a new way of spending money – we look at it as a possible means of making money.

And rest assured, there is money to be made (in fact, this site has even posted about how to go about it). It’s a very difficult commodity to analyze and predict, but many have already earned profits. Indeed there appears to be a burgeoning class of “bitcoin millionaires” already, many of whom have been freely offering advice to amateur speculators for the better part of a year now. On a narrower end of the spectrum, it’s also possible to make quick, small gains in bitcoin – something like $50 in a day, or $200 in a week – simply because of the volatility of the asset. Bitcoin can easily climb or fall over $1,000 in a single day, if not in the space of a couple hours.

With all this said, however, the idea of making significant money in bitcoin is a very optimistic one. While it can certainly be done (and has been done, as mentioned), it’s also an optimal outcome that not all investors will experience. All investments are inherently risky – even for those knowledgeable about the relevant assets – and bitcoin, many would argue, is particularly so. That’s somewhat subjective, but here we’ll dive into some of the factors that lead many to view bitcoin investment with a degree of caution and/or skepticism.

READ ALSO:   6 Best Cryptocurrencies To Invest In Now (2018)

Bitcoin Is Still Young

It feels like we’ve been talking about bitcoin for a long time now, but the reality is we’re not even 10 years in. The pioneering cryptocurrency first went live in January of 2009, and didn’t really register significantly among consumers until a few years later. Furthermore, though we now talk freely about how many thousands of dollars bitcoin is worth at a given time, it didn’t actually cross the $1,000 mark until right around New Years 2017. Bitcoins are still being mined, prices appear to be forever fluctuating, opportunities to spend it are always coming and going, regulations are changing, and people are still learning how (and why) to use it. Simply put, because bitcoin is still so young, we’re still figuring it out – and that makes its long-term potential unpredictable to a great degree.

There Are Dot-Com Comparisons

Particularly for younger generations, the idea of the “dot-com bubble” representing something of an investment boogie man might be foreign. It does come up with regard to bitcoin however, and in fact was mentioned in a recent article that took a look at the investment and risks related to the cryptocurrency. The article was aimed at the Irish online gaming market, given that European gamers are increasingly eyeing bitcoin as a useful currency, but it accurately covered this more general concern. The idea is that just as some early investors made a killing in early internet companies, spiking the market temporarily but making things difficult for subsequent buyers, the peak of bitcoin investment may already have passed. The “bubble” of 2017 may represent heights that were lucrative for early investors, but which will only ever tease the rest of us.

READ ALSO:   Cryptocurrency Trading For Beginners: A Guide To Cryptocurrency Trading( Bitcoin&Altcoins -Overview, Markets, Analysis, Emotions,Psychology, Risk and Strategy)

Regulation Has An Ongoing Impact

The Risks Of Investing In Bitcoin

I mentioned regulatory concerns briefly, but they’re worth delving into more specifically. There are various theories as to why bitcoin fell off so dramatically heading into 2018 after reaching nearly $20,000 toward the end of last year. One, for instance, is that the introduction of futures trading brought negative speculation along with it, and effectively crashed the market. However, another is that tightening restrictions on cryptocurrency usage in East Asia hurt demand, and by extension the price. This is something that at least in theory can happen in any major market at any time, which means there’s always potential for cryptocurrencies to take a fairly significant hit. The hope among investors will be that by tracking government and financial institution attitudes toward these currencies, they can forecast any drastic changes on the horizon.

Altcoins Are Part Of The Market

As a sort of aside to this conversation, it’s worth considering that thinking of bitcoin investment may actually not be the proper approach. Rather, we should think of investing in cryptocurrencies as a category. Altcoins were once looked at as little more than the lesser, younger siblings of bitcoin, but several have risen to prominence and have become serious commodities in and of themselves. Indeed a recent article aimed at cryptocurrency enthusiasts even suggested that some could beat bitcoin in the coming months. The risk factor here is that one or even several altcoins could ultimately become more valuable than bitcoin, making interest in the original drop off (and value along with it).

Utility Is Questionable

As our thinking about bitcoin has evolved – from currency to commodity – so too has our concern over how useful the currency is in everyday society. For those who do still wonder about this, however, we seem to have a fairly concrete answer: it isn’t particularly useful. There was an early surge in online merchants accepting bitcoin, but the idea hasn’t really caught on, even if a few new uses pop up here and there from time to time. Meanwhile, in-person opportunities to use bitcoin are few and far between, unless you take the trouble to pre-load a debit card with bitcoin funds (which is an option). Whether or not a lack of general day-to-day utility will ultimately hurt bitcoin’s value remains to be seen, but it’s certainly possible that the public at large has overestimated the cryptocurrency’s real world value, and a correction could come.

READ ALSO:   How to Make Money From Bitcoin

Security Is Largely A Myth

Lastly, it bears mentioning that the security of bitcoin is – at least insofar as it is commonly described – a myth. It’s true that bitcoin is an encrypted and decentralized currency, as well as that the blockchain tracks all transactions and can thus prevent certain types of fraudulent activity. At the same time however, bitcoin holdings are primarily stored as digital assets online, which means they’re always at least somewhat vulnerable to server crashes, hacking, and other digital security risks. Bitcoin may not be any riskier than any other type of investment or wealth in this regard – but the idea of absolute security is exaggerated.

None of this is to suggest that bitcoin shouldn’t be on your radar as an investor, nor that it’s necessarily a bad idea. But as with any other type of financial investment, it pays to know the risks as well as the potential rewards.

2 Comments

  1. Alhaja March 31, 2018
    • Martins April 1, 2018

Add Comment