Chances are you have at least one mate who bought a few bitcoins for something like $27 a pop all the way back in 2009, and is currently gloating his way to the bank. Meanwhile, you’re still wondering why you shouldn’t invest in bitcoin. Not helping is that same mate, who can’t stop talking about the future of currency, and power to the people, and how the global institutions can’t be trusted. After all this time, you’re cracking, and finding yourself tempted to explore bitcoin as well as cryptocurrency in general. Before you buy or sell bitcoin, however, you should be aware of the fact that your seemingly savvy mate might have literally no idea what he’s talking about.
The truth is that most people have no clear indication of where bitcoin is headed in terms of value. Heck, most people still haven’t fully wrapped their heads around what bitcoin is in the first place. Is it currency? Is it digital gold? Is it a commodity? Is it some sort of weird math problem that pays off when you solve it? Furthermore, while bitcoin seems destined to stick around, that doesn’t inherently mean its value can’t plummet overnight. Hence, before you make any initial investments, consider the following 5 reasons why you shouldn’t invest in bitcoin.
No One Really Knows Who Created Bitcoin or What’s Driving Its Value
Like a Banksy of the financial sector, bitcoin’s creator (or creators) remains a completely elusive figure in spite of his worldwide regard. All that’s really known is that he (or they) established the first blockchain database, designed bitcoin, is currently worth billions of dollars, and goes by the pseudonym of Satoshi Nakamoto. Some say Satoshi is a Japanese businessman, others a Russian Ponzi schemer. Some folks even insist he’s a project created by the NSA and other American intelligence organisations. Whoever (or whatever) he is, Satoshi Nakamoto’s anonymity remains problematic because it keeps his intentions similarly elusive. Why would you want to buy into something when you don’t really know where it came from?
Likewise, because bitcoin allows purchasers to retain their anonymity, it’s not exactly clear as to whom or what drives bitcoin’s value up or down. That’s why so many folks on Wall Street keep sounding the alarm. To many of them, bitcoin still resembles a bubble, or a “pump and dump” scheme (where a select group drives up the price and then cashes out, resulting in a crash), or a Ponzi scheme (where a select group promises investors a fortune and then walks off with all the money). Add it all up and you have a pretty convincing argument as to why you shouldn’t invest in bitcoin.
Bitcoin’s Value is Extremely Volatile and Therefore High Risk
Wall Street investors might look reckless in the news or in movies, but the truth is that most of them prefer to play it fairly safe. That’s why they put large of amounts of money in places where the volatility factor is relatively low, playing the long game and earning massive amounts of wealth over time. Bitcoin, by contrast, is basically a roulette wheel masking as an investment plan. As of this article, bitcoin’s value is hovering around the $7000 USD mark. Two months ago, it was nearing $18,000 USD. Those are staggering losses compared to your average index fund or stock portfolio.
Naturally, there’s a flip side, in that your $7000 purchase today could very well be $18,000 in a month’s time, but that’s certainly no guarantee. At the end of the day, if you have money to lose, then by all means play the wheel. However, if the price of one bitcoin could make or break your life savings, then the volatility factor alone makes it not worth the risk. In other words, this is yet another reason why you shouldn’t invest in bitcoin.
You Should Never Invest in What You Don’t Completely Understand
No matter how many times they’re explained, the concepts of blockchain, P2P, altcoin, bitcoin and crypto in general feels pretty slippery. If you agree, then you should probably stay away. As any seasoned investor will tell you, you should never put your money into something you can’t fully grasp. And don’t feel alone in your head-scratching. Even Warren Buffet himself said he wasn’t investing in bitcoin because he didn’t understand it. Like so many other rich investors, Buffet prefers to invest in things where has at least a semblance of control over information and, by extension, reasonable confidence in outcome. You should consider following suit.
Bitcoin is Not 100% Secure
You may have heard about the recent Coincheck hack, where thieves made off with half a billion dollars in digital tokens. That’s just one in a long string of crypto hacks, proving how the market itself is not beyond penetration from criminals. That’s joined by the fact that your holdings are not regulated, meaning if a thief makes off with your stash, then that stash is potentially beyond retrieval. To be fair, Coincheck has agreed to pay back its customers for the recent loss, but they’re not necessarily obliged to.
Furthermore, one of bitcoin’s built-in security measures is that mining for bitcoin is decentralised and spread out, making it harder to infiltrate. However, as bitcoin mining yields less return over time, the miners themselves will potentially quit, causing bitcoin to centralise and thereby making it more prone to attack.
Last but not least, most bitcoin owners rely on the cloud, or their own hardware, to protect their crypto investments. As any techie can tell you, most of these platforms are far from foolproof, prone to hacks, crashes and malware attacks alike. Sure, your bank account information and credit cards might be similarly vulnerable, but how many bitcoin wallets come with fraud protection?
Bitcoin Mining Takes Up Lots of Energy
According to at least some reports, bitcoin mining takes up enough energy in a year to power the entire country of Ireland. In other words, bitcoin mining takes up lots of energy. Naturally, there are plenty of crypto enthusiasts out there with quick rebuttals, namely that bitcoin mining is rapidly getting “cleaner”, and that fiat currency still yields more environmental impact. Nevertheless, the fact remains that bitcoin mining isn’t currently “good” for the environment by any means. If you’re the type of person who avoids eating certain foods or performing certain activities strictly because of their environmental impact, then you should at the very least read up on bitcoin mining’s energy consumption before hopping on board.
A Note from the Editors: We’re by no means against cyrptocurrencies or bitcoin in general whatsoever. There are a multitude of potential benefits and use cases for both. But thought these should be some facts you’re made aware of before you spend your hard-earned cash.