7 Reasons Investing in Bitcoin is an Awful Idea
Bitcoin has been at the center of the headlines throughout the COVID-19 pandemic. Its meteoric rise has attracted the attention of many institutional investors. Elon Musk’s $1 billion investment in Bitcoin sparked another market spike and demonstrated early signs that Bitcoin could go mainstream.
Other cryptocurrencies have also shown promise, with the Internet meme currency Dogecoin rising 6000%.
But does this make it a smart investment option? Absolutely not, and here’s why.
- Bitcoin isn’t Scarce
Investors talk about Bitcoin as if it’s a scarce resource on par with gold and silver. This couldn’t be further from the truth. While gold and silver are limited by what can be extracted from the earth, Bitcoin is generated via computers. There’s nothing within the technology that prevents the limit from being increased at a later date.
The idea of scarcity is a manufactured one, and one that could come back to bite in the distant future.
- Limited Utility
Despite what fans of Bitcoin like to rave about, Bitcoin has yet to seriously enter the mainstream commercial world. Even Bitcoin proponent Elon Musk announced that Tesla will no longer accept Bitcoin. Very few retailers offer Bitcoin as a payment option.
The fact is that Bitcoin simply has very little use in the real world, which means that its price is based entirely on investor faith. Once this collapses, Bitcoin is finished.
- Low Barrier to Entry
Even the most basic beginner’s guide to investing your money talks about investing in companies with long-term potential. Examine the companies that have a truly unique selling point.
Cryptocurrency has an extremely low barrier to entry. The technology is not unique to Bitcoin and it doesn’t take much for another business to one-up the epiphanous cryptocurrency.
This doesn’t mean investing in blockchain technology itself is a bad investment, but Bitcoin (like all cryptocurrencies) is extremely vulnerable to being one day overtaken.
- No Tangible Valuations
If you want to value an investment, there are many ways to do it. Platforms like TopStepTrader offer all the tools you need to value a stock, and you can check out this review on TopStepTrader to find out more.
When valuing a real company you can examine their balance sheet, their debt, and their forecasts. With Bitcoin, there’s no tangible way of valuing it.
Its price is based on nothing of value. It’s based on news headlines and Tweets. Serious investors will therefore not look at Bitcoin as anything more than a gamble to earn extra money.
- No Regulation
The unregulated nature of Bitcoin is what puts your money at risk. If your tokens are ever stolen, there’s typically little you can do about it. Trying to manage your finances with no safety net is a nightmare.
The lack of regulation also poses a different problem. If governments do decide to regulate it, one of the unique selling points of Bitcoin vanishes: anonymity. That assumes national governments don’t simply decide to ban it, which India and China have already mulled over.
Any attempt at regulating the cryptocurrency markets would gain the recognition Bitcoin investors have sought, yet at the same time spell the beginning of the end of Bitcoin.
- Fiat Currencies Can Undermine Bitcoin
Businesses have not adopted Bitcoin en masse, and there’s little sign of it happening anytime soon. Blockchain technology, however, is the future. The underlying technology behind Bitcoin could prove to be its undoing.
If cryptocurrency is the way forward, national governments could easily adopt the technology and take fiat currencies into the same realm. Rumors have already circulated that China is poised to do this with the Digital Yuan.
The moment fiat currencies enter the arena, it’s all over for Bitcoin.
- The Bubble Will Burst
The whole principle of making better investing decisions is to survive the ups and downs of the market. Stocks enter bubbles too, but not to the same extent as Bitcoin.
The exponential price increases and the excessive volatility of Bitcoin are not sustainable. With analysts predicting Bitcoin prices of up to $1 million, it’s clear that people have become carried away with an asset that has no tangible value.
Focus on making long term investments within your stock fund and don’t get caught up in the bubble.
Final Thoughts
Greed is what drives the rise and fall of Bitcoin. People forget that it’s inherently vulnerable to not only the markets but the machinations of national governments. The market movements over the last few years have been based on nothing more than headlines, and that’s dangerous.
Bitcoin is already displaying many of the warning echoes of the Dot-com Bubble, where excessive speculation and mass hysteria are everywhere.
Intelligent investing for kids stipulates that smart investors focus on long-term investments in real assets. If you stick to traditional investing principles, you secure your financial future.
Do you believe Bitcoin is a good long term investment?