Bitcoin is one of society’s hottest topics. Late last year, in October, 2017, J.P. Morgan Chase chief executive officer Jamie Dimon answered a media member’s question about Bitcoin with this inflammatory response:
“If you’re stupid enough to buy [Bitcoin], you’ll pay the price for it one day.”
When Berkshire Hathaway CEO Warren Buffett was asked for his opinion on investing in Bitcoin. He responded by stating:
“You can’t value Bitcoin, because it’s not a value-producing asset. . . [there is] a real bubble in that sort of thing.”
While all cryptocurrencies carry an elevated risk, they are also capable of becoming an investment that garner substantial returns to investors. This statement can be exemplified by the rapid and unprecedented growth cryptocurrency experienced just last year.
As of January 1st, 2017, the price of Bitcoin, the mother of all cryptocurrencies, was just under $1,000, in terms of United States dollars.
By late December, Bitcoin experienced a massive spike, causing its price to rise to nearly $20,000. However, it has also lost considerable value, as its price has dropped to short of $9,000 just one month after its previously mentioned rally.
In spite of its pitfalls, many are still entertaining the idea of investing in Bitcoin. If you fall under that category, it is important you consider the financial risks of doing so. In order to make the most informed decision possible, let us review some of the most relevant, substantial risks that investing in cryptocurrency can bring.
Bitcoin’s value is almost as unpredictable as the lottery
Unless luck is on one’s side, consistently winning lottery jackpots is indisputably impossible. While profiting off of Bitcoin is not as unpredictable as the lottery, per se, what is true is that nobody on planet Earth can reliably predict the price of Bitcoin — or any cryptocurrency, for that matter.
Buying and holding Bitcoin in hopes of generating a profit is a bad idea for most investors. Unless one can afford to throw away their investment entirely — take this advice in a literal sense — investing in Bitcoin is likely not their best option.
Bitcoin does not guarantee long-term success
Individuals invest money to grow wealth over time, or at least protect against inflation. Unfortunately, investing in Bitcoin is not a reliable method of achieving those goals.
As an investor that is focused on consistently generating returns, why not invest your hard-earned money into tried-and-true financial instruments that are almost certain to generate profits in the long run, such as stocks, mutual funds, or personal retirement accounts?
After all, even the most daring financial advisors will say betting on Bitcoin is essentially gambling. So, if you can afford to gamble, riding the rollercoaster that is Bitcoin’s daily candlestick charts will likely prove fun. If not, it would be in your best interest to explore other options.