Bitcoin is undoubtedly the star of today’s speculative investment landscape.
It seems like everyone has a story to tell – whether it’s someone who became a millionaire after investing a few hundred dollars in the cryptocurrency during its nascent “novelty” phase, or traders who lost unimaginable sums of money betting on the currency just prior to its steep end-of-the-year plummet or subsequent corrections.
These stories underpin an important truth about Bitcoin – and cryptocurrency in general – that potential investors should take to heart before filling their portfolios with the unpredictable assets. The truth is that while the blockchain technology that underpins Bitcoin has real market potential, it is not mature enough to merit the risk of investment.
Look to the following 7 reasons why you should pass on Bitcoin, and play the waiting game when it comes to alternative cryptocurrencies.
7 Reasons Why You Should Pass on Bitcoin
Although the temptation of investing in something that could earn you massive returns quickly is understandable, disciplined investors will cite the following issues with treating Bitcoin and related crypto-assets as part of a serious investing strategy.
1. It Is Extremely Volatile
Most newcomers to cryptocurrency cite volatility as a positive sign. This is only true if you are lucky enough to get in and get out at opportune times – but most investors don’t. Cryptocurrency volatility has made some a few people rich, but makes the assets so unpredictable as to make any long-term strategy nearly impossible.
2. It Is Neither a Commodity or a Currency
For any commodity or currency, there are clear mechanisms for determining the underlying value of the asset itself. This is not the case for Bitcoin, nor for other cryptocurrencies. As a commodity, Bitcoin cannot be said to support any legitimate enterprise. As a currency, high transaction fees and increasingly long transaction verification wait times make it a poor substitute for dollars, pounds, or euros.
3. Few People Understand It
Warren Buffet’s timeless advice is as important as ever: “Never invest in a business you cannot understand.” In a world where global financial experts disagree on what cryptocurrency really is, and what it really does, everyday retail investors have little chance to work it out for themselves.
4. The Cryptocurrency Market is Unregulated
Cryptocurrency enthusiasts often point to Bitcoin’s unregulated nature as a positive benefit – until they get ripped off. In a legitimate marketplace, centralized authorities have the power to punish wrongdoing and appropriate funds to their rightful owner. This is not the case with cryptocurrency. If you get robbed, ripped off, or otherwise duped, you are on your own.
5. Cryptocurrency Currently Sits in a Legal Gray Area
The Reserve Bank of India issued its first warning about cryptocurrencies in 2013. It has since updated that warning, stressing the fact that it has not granted any license or authorization for cryptocurrency transactions. Anyone who participates in these transactions does so as their own risk, forfeiting the legal recourse you would otherwise enjoy using a government-backed fiat currency to invest in a regulated commodity.
6. Ponzi Schemes Abound
The U.S. Commodity Futures Trading Commission is overwhelmed with cases of cryptocurrency fraud. Non-existent currency “inventors” use investor naiveté to rack up millions in illicit funds and disappear overnight.
Yves Mersch, board member of the European Central Bank has gone so far as to categorize Bitcoin as a Ponzi scheme. In the absence of real value being generated – such as the case with a government-backed fiat currency tied to that government’s GDP – Bitcoin investors at the top of the pyramid are simply earning money that downstream investors must lose.
7. It Finances Illegal Activity
If Bitcoin is the index for any real-world enterprise, it is the black market. So far, the only value-added use for Bitcoin is funding illegal transactions – from ransomware hacking to money laundering to the purchase of illegal drugs and weapons over the Internet. However, even criminals are fleeing the cryptocurrency. There is no predicting where the so-called Darknet marketplace will go from here, nor what your investment is actually funding.
As an experiment in decentralized fiduciary policy, Bitcoin is about as successful as a cryptocurrency could possibly be. As a trading asset or a real-world store of value, however, it fails in critical respects. Nevertheless, the blockchain technology that underpins Bitcoin can have real value for investors and entrepreneurs alike – when it matures enough to offer functionality beyond black-market speculation.
Are you ready to apply a long-term strategy to your investment approach? Contact Algotechs and find out how we can help you put together a robust, legitimate portfolio of tradeable assets you can rely on.