Why buying bitcoin is bad
The price of Bitcoin is always rippling back and forth. While you'd be doing great now, holding for years at a time is not a viable option for all investors. Threat of hacking. While Bitcoin's blockchain has never been hacked, individuals can still get hacked if they give out sensitive information, such as their private keys. Also, it's not uncommon for lesser-known exchanges to be hacked. For best security, use a crypto wallet like the Ledger Nano X that stores your digital assets off the internet on an external device.
Can Bitcoin be Exchanged for Real Money? Bitcoin can be converted to cash in a couple of different ways. You can sell Bitcoin on a cryptocurrency exchange like eToro or Crypto. The cash will be deposited directly into your bank account. This is a simple way to convert your Bitcoin to cash, but you must remember that the price of a Bitcoin is changing all the time.
Yes, you may need cash, but you might be kicking yourself a few years down the road if the price of Bitcoin skyrockets over and over again. Bitcoin ATMs are expensive, but if there is one near you, you can exchange your Bitcoin for cash there. However, these ATMs often charge hefty fees, so you're most likely much better off using an exchange. Is Bitcoin the Future? With institutions adding Bitcoin to their balance sheets and El Salvador officially making Bitcoin legal tender, it's looking like Bitcoin could be the future of currency, or at least an accepted store of value.
However, with so much volatility in the market, risk-averse investors are still hesitant to buy Bitcoin, much less any other cryptocurrency. Since Bitcoin isn't controlled by a central entity, its monetary policy is much more sound than any government. With governments printing out more money than ever before in light of the pandemic, investors are looking for alternative investments to hedge against inflation. Many are turning to Bitcoin to do so, facilitating adoption of cryptocurrency over the long-term.
Is Bitcoin a good investment? It can be, so long as you do your research and invest wisely. Investors might, however, turn Bitcoin into a bad investment if they try to treat it like any other asset. If you invest in crypto, make sure you consult a tax professional. We could be in a bubble on the verge of bursting With prices rising rapidly over the last several months, there are concerns that crypto could be in a bubble. While there have been ups and downs with cryptocurrencies, the recent runup for many cryptos could indicate this.
When prices get this high, some investors are likely to want to start taking profits. When that happens, they sell their coins for a high price. However, all that selling starts prompting price drops. Fiat currencies are currencies issued by a government or its central bank, such as the U. Some U. That means putting the U. China is currently working on digitizing its currency, and other countries might decide to move forward with similar efforts.
Fiat currencies may follow suit. You still have to find someone willing to accept the cryptocurrency of choice when you pay or convert your crypto tokens to fiat currency in order to complete a transaction. On top of that, because cryptos are so trendy, there are investment schemes surrounding these currencies.
Additionally, if someone does manage to get into your crypto wallet, they could steal your coins, and you have no recourse, whether they manage to get into an online wallet or some other wallet. There are a number of cryptocurrencies and crypto exchanges, and pretty much anyone can make a coin offering without going through the kind of vetting that a publicly listed company would be subject to. So if the company managing your crypto holdings fails, you might not have recourse to get your money back.
Others might be more comfortable allocating a lower percentage to alternatives. That encompasses all of my alternatives, including crypto. When too much of your portfolio is in crypto, you run the risk of losing more than you can afford to if the bubble bursts or price volatility catches up with you. That means you have to go outside these regulated channels in order to perform crypto-based transactions. Instead, the underlying technology is being used to improve their own banking ecosystems.
The market is crowded with made-up currencies While some cryptocurrencies, like Bitcoin and Ethereum, have made their way into widespread consciousness, there are still plenty of other made-up currencies. In fact, there are more than 8, cryptocurrencies, as of December , listed on the crypto price-tracking website CoinMarketCap.
This makes it hard to tell which currency will catch on. One of the surprising facts about cryptocurrency is that some of them, like Dogecoin, were started as jokes but then saw their price skyrocket before dropping lower. In fact, it could be a way to provide a little extra growth for your portfolio, as long as you have the risk tolerance for it.
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Adding to the pile of crypto firm insolvencies, it was reported around June that Three Arrows Capital 3AC , a Singapore-based crypto hedge fund, was insolvent. The series of liquidations from crypto lenders such as BlockFi, Voyager and Celsius spelled disaster for 3AC, sending the firm into bankruptcy. Celsius, a decentralized finance DeFi platform and one of the largest crypto lenders was a big source of negative Bitcoin market sentiment in mid-June.
With up to 1. The company takes crypto deposits and loans them out to other investors and financial institutions in a process analogous to conventional bank lending. Users earn yield from the revenue Celsius generates from crypto borrowers. In June, the company stopped disclosing its total AUM on its website. Experts also say that BTC is no longer viewed as an inflation hedge, trading in lockstep with equities, which are also in a downturn. Just how many hikes remain is unclear, but analysts expect the central bank to keep raising rates through the end of the year and into The fed funds rate could end the year at 3.
When the Fed raises interest rates, it lessens demands for more growth companies—like tech stocks —and speculative risk assets—like cryptocurrencies and Bitcoin. Judging how much demand for crypto will remain with all the liquidity drying up is an open question. Stocks, commodities, high-yield bonds, currencies—and Bitcoin—are risk assets because you can expect their prices to move up and down frequently under almost any market conditions. Until recently, Bitcoin was considered a store of value that was somewhat immune to fluctuations in the value of risk assets.
The 21 million cap was set by a human. As the cost has skyrocketed, investors are jumping on the bandwagon. As a result, the price inflation is likely driven by word of mouth and good press. If something happens and Bitcoin tanks, those same individual investors will be quick to sell, leading to another crash. Security experts advise keeping very little money in your online wallet, with most of it stored offline. If your wallet is hacked or stolen, the bitcoins on it will be lost forever.
A secure bank vault can help protect you against loss. Transaction fees cut into profits Once you have bitcoins, getting them out of that wallet will cost you. There are transaction fees charged on every purchase. One problem with Bitcoin transaction fees is that they go down significantly if you purchase higher volumes. Worse, you may find the fees make smaller purchases less of a wise investment.
Before you park your bitcoins, make sure you understand those fees. Coinbase, a popular Bitcoin exchange, charges no fees to store your cryptocurrency, but you will pay a fee for moving your bitcoins outside of the network. If you put your cryptocurrency eggs in the Bitcoin basket, it could be like investing in Yahoo or AOL in the early days of tech stocks.
One popular alternative to Bitcoin is Litecoin, which is an easier-to-use cryptocurrency. Ethereum has also become a serious competitor to Bitcoin. The bottom line is, are you sure that Bitcoin will be the top cryptocurrency a decade or two from now? How much are you willing to risk on that bet? Perhaps most importantly, though — anyone can create a new cryptocurrency.
Granted, this is likely something that only a portion of the population would attempt, but that portion could be enough to flood the market with Bitcoin alternatives. That would, in effect, dilute the market, potentially making your own investment less valuable. If Bitcoin is no longer available, would someone just create a similar alternative, or would a competitor instead take over the market?
A limited history Yes, Bitcoin has been around for more than a decade. But when compared to other investment options, its history is quite short. The crash is often cited as a reason the asset is a risk. The sudden crash in coincided with news of Bitcoin wallet cyberattacks. Dangerous precedents You may not be able to trace cryptocurrency back over the decades, but there are precedents from other sectors.
Experts have already expressed concern about the current thriving stock market. Still, even high-dollar investors have steered away from high-risk investments like cryptocurrencies.
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