8 Risks of Investing in Bitcoin

Bitcoin sits at the top of the cryptocurrency kingdom. It is by far the largest, oldest, and most established cryptocurrency in the world, and has its fair share of haters. The majority of the haters feel threatened by what it represents in terms of change in money and finance. They, therefore, focus on its high energy consumption, the fact that it has no intrinsic value, and its vulnerability to external hacks. The purpose of this blog is to provide 8 objective risks to Bitcoin, setting aside any prejudices or hidden agendas. So let's jump in.

1) Volatility

Bitcoin is massively volatile. It however needs to be remembered that this is not unusual for new technologies. Amazon's share price gyrated violently in the first decade of its life. Apple also was no stranger to growing pains. You can also add Tesla to the list. It is hard to find any asset that has made a mark on this world that did not start its life surrounded by high levels of uncertainty.

2) Cybertheft

Bitcoin is technology-based which means that it is open to cyberattacks. Exchanges are the most vulnerable to attack. Crypto exchanges are the banks of cryptocurrencies and therefore the intense focus of hackers.

3) Fraud

In addition to hacking, there is a fair amount of fraud in the crypto market. Exchanges can be fake or set up with pretenses. FTX could be a good example, although the jury is still out on this one. It is yet to be proven that Sam Bankman-Fried was a fraudster like Bernie Madoff - it may be that he was a terrible banker. Banks use customer money all the time. It is possible that SBF did not steal customer money - he traded it and found himself on the wrong side of the market.

4) Little or No Regulation

I am not a total libertarian. I like a little regulation. A few smart rules go a long way to maintaining order in a world that is sometimes a little crazy and unhinged. The Bitcoin market is currently operating without any major regulations. Governments do not have a clear stance on cryptocurrencies on account of the relative newness of the market. It is difficult to tax which could lead to problems if Bitcoin starts to pose a major threat to government currencies. As of today, it is not widely accepted as a currency, but the future is ever-changing.

5) Technology reliance

Bitcoin relies heavily on technology. Coins are digitally mined, exchanged via a smart wallet, and stored either online or offline. The underlying value of any cryptocurrency is the strength of its underlying technology. They have no physical collateral to back them up. With gold, real estate, bonds, or mutual funds you own something that can be exchanged. With crypto, you are 100 percent reliant on the underlying technology.

6) Block Withholding

New Bitcoins are created by solving complex mathematical equations called blocks. A mining pool can use computational power to mine a block and hide it from honest miners instead of reporting that new block to the network. Essentially, this is a way for a select few to reap the benefits while the others are left with nothing.

7) Limited Use

The use case for Bitcoin is limited. Few vendors accept Bitcoin. The major ones can be counted on one hand - Microsoft, Home Depot, Whole Foods, and Virgin Airlines. Of the world's five largest retailers (Walmart, Amazon, Costco, Schwarz Gruppe, and Home Depot), the last one accepts Bitcoin. The vast majority of companies do not recognize Bitcoin as a fair exchange.

8) Young Technology

Crypto is still a very young technology. Bitcoin is only on the point of becoming a teenager and there is still no telling how the market will evolve. It has all the potential to become something great but the risk of investing in it is still high.

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