Whatever position you have on bitcoin, one thing is certain: it is divisive. Some investors say it is the wave of the future, whereas others believe it is a ruse.
It is, however, gaining attention. The coronavirus pandemic is likely to have accelerated its adoption by driving more shopping online. More than a third of small and medium-sized companies today accept bitcoin as a form of payment. 1 Also larger corporations, such as Microsoft, are beginning to embrace it. 2 Bitcoin supporters also see it as a deflationary hedge. And, because the Federal Reserve has been printing money like crazy, some people are worried about the dollar’s prospects.
You might be curious whether you should join the bitcoin bandwagon or run the other way. Before you dive, weigh the following risks:
Bitcoin is one of the riskiest assets available.
Bitcoin’s worth goes through amazing ups and downs. A bitcoin was only worth eight cents in July of 2010, a year since it was first opened to the public. The value bounced all over the place until 2017 when it finally began to make a splash. Early on, one bitcoin was worth $1,000, then soared to $5,000 in October, then multiplied to $10,000 in November. By mid-December, one bitcoin was worth over $20,000. By November 2018, the bubble had broken, and the value had fallen to about $3,500.
However, in 2020, bitcoin’s value began to rise once again. Just a few weeks ago, the value of a bitcoin reached an all-time high of just under $42,000, before plummeting to $34,863 in less than 24 hours.
Will its value continue to rise? We have no idea. Volatility, on the other hand, often equals risk. And although taking risks isn’t always a negative thing, you should be mindful of the potential costs.
Bitcoin is going through a bit of an identity crisis.
Is bitcoin more similar to the US dollar than it is to gold? Both are right. About the fact that bitcoin is an asset, Uncle Sam has a different opinion. Bitcoin is classified as an asset (like gold) by the Commodity Futures Trading Commission, but it is classified as property by the IRS, which ensures it can be taxed.
It’s important to remember that bitcoin is only a relatively young technology. Even though bitcoin has been around for over a decade, there are still no tried and tested best practices for creating wealth with it.
Bitcoin is not governed by any government or central bank.
Since Satoshi Nakamoto, an anonymous human, launched Bitcoin into the universe in 2009, it has been cloaked in secrecy.
7 It is peer-to-peer and runs without the supervision of either bank or nation-state. There is no marshal to enforce the rules because it’s like the Wild West with currencies. This is an attribute that some people find appealing. Others are aware of the dangers that come with no oversight.
Bitcoin is commonly used for nefarious purposes.
The blockchain scene is a hotbed for cybercrime because all bitcoin trade is done secretly. Bitcoin is used for a variety of shady activities, including extortion, phishing, Ponzi scams, and dark web transactions.
Of note, there are plenty of law-abiding individuals that use cryptocurrency. Hackers who know a lot more about coding and apps than the ordinary Joe, on the other hand, will take advantage of the knowledge — so be cautious.
As you might expect, I’m not a big fan of bitcoin. I’d much rather see you put your money into tried-and-true wealth-building strategies like tax-advantaged savings portfolios and growth equity mutual funds. However, if you’re interested in learning more about bitcoin, read our full blog post on the subject. The most important thing to remember is to always be educated, conscious, and in charge of your financial decisions!