The pandemic has made a significant impact on the economy. 2020 has been a really taxing year for the investors. There have been a lot of historical ups and downs in the market.
However, the one investment that’s remained unaffected by the pandemic is the cryptocurrency Bitcoin.
When does one want to invest in stocks or Mutual Funds? When they’re assured that their returns and capital are safe; when they know that they will be able to cash out their holdings in the crisis; when they are convinced that they will make money.
But this is not the case when it’s about cryptocurrencies like bitcoins. There’s a mania around bitcoins these days. Cryptocurrencies come with huge returns, which is mainly the reason for it’s a rage these days, even though it comes with so much uncertainty and considerable risk.
Do you think having huge and unrealistic returns a good enough reason to invest in it? Not just the risk factor, there are also many other reasons why it’s not a smart idea to invest in cryptocurrencies. Let’s have a look.
1. Bitcoins Are Not Limited
The token count of bitcoins is regulated by computer programming. And that’s what dictates its numbers. It’s not the same as the physical metals like gold that are extracted from the earth and hence, are limited. You can read about buying guides of bitcoin at https://cryptonaute.fr/acheter-bitcoin/.
The gist is that the programmers can increase the token limit anytime in the future with their community support. Thinking that bitcoins are scarce is just a delusion. It’s not what the reality is.
2. Bitcoins Growth Is Determined By Speculations and Speculations Only
There’s always a mechanism behind every investment product that decides its growth. When a company grows in terms of its turnover, earnings, expansion, etc., its stock prices grow. But with bitcoins, there are no such factors that could determine its growth or fall. Speculations solely dictate its prices.
The common speculation is that there’s a growth in the price of bitcoin because it has a limited supply and is not centralized. Another major thing that can drive its costs is the rise in its demand in the economically or politically unstable regions.
3. Lack of Utility
Bitcoin doesn’t come with much utility. Out of 18.51% million bitcoin tokens available in circulation, about 40%are held by a small group of investors.
Even though there’s a prevalence of fractional token ownership, about 10-11 million tokens in circulation are not going to go much far. This can be better understood from the context that global gross domestic product in 2017 was 81 trillion dollars while bitcoin tokens of 114-125 billion dollars are circulating freely and are not tightly held by investors.
4. No Regulation: You’re Losing Your Money If the Exchange Goes Down
Different bodies and authorities regulate all the product and capital markets. But there’s just no monitoring on the bitcoins.
You become helpless if you invest in a fraudulent bitcoin exchange. You can’t approach anyone in such a case, not even the government. You can forget about your money in the absence of a regulator.
Cryptocurrency is completely bought and sold at face value. There’s no way of validating the credibility of bitcoins. Many investors have had to struggle a lot to sell off their holdings. It’s a risky commodity if you have to work to liquidate or remit it.
5. Getting Into Cryptocurrency World Is Too Easy
If you’re acquainted with coding even a little bit and have some time on your hand, you can get into the network with a digital token. It is so easy to get into the cryptocurrency world. Of course, bitcoin does have an advantage over other cryptocurrencies since it was the first one in the category.
But there’s nothing exclusive or uncommon about the fundamental blockchain of bitcoin that other trades couldn’t beat.
6. What Would Investors Do If RBI Banned Cryptocurrencies?
There’s no clarity on the legal standing of cryptocurrencies in the present day. Some bitcoin exchanges are trying to afflict its legality. So, if it gets or is already banned in some places, the exchanges will be shut down, and with no regulation henceforth, anyone transacting in bitcoins will lose all the money invested.
The only way you can save your money is by transferring your holdings from the exchange wallet to a client-side wallet, a dedicated wallet or a hardware wallet. This way your account’s private key will remain guarded, and there won’t be so much chance of losing money.
Interesting Related Article: “Everything You Need to Know About Bitcoins If You Are a Beginner“