After watching the news that the bitcoin has lost more than 30% of value in its worst week since 2017, I have decided to write this article. Though the bitcoin situation is being watched by me for years, assuming it would just gale over, but a cumulative absurdity has sprouted around the new field of cryptocurrencies, causing an unreasonable gold rush all over the world. It has brought to the point where plenty of questions and financial stories in my inbox, asking whether or not to invest in bitcoin.
So, let’s get started with the reasons why you should not invest in bitcoin cryptocurrency.
1: Extreme Volatility
There’s a high risk involved when it comes to investing in cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) as prices have been extremely volatile. Numerous experts are skeptical about bitcoin as an investment primarily because there is nothing for them to analyze. “There isn’t enough of an ecosystem surrounding bitcoins to allow fundamental analysts to study it as an investment. People are therefore investing with imperfect information and joining the herd of speculators” said by Vivek Belgavi, Partner, and Fintech Leader.
Since the prices aren’t regulated, as more people enter the market lured by the high prices which ultimately lead to the formation of a bubble that will finally burst and cause widespread losses.
2: Don’t Invest If You Don’t Understand
Experts and bankers all over the world have already warned investor against investing in cryptocurrencies as they are of the opinion that it’s nothing but a bubble which is ready to burst. So if global bankers don’t understand the reality, retail investors might have not much of a chance either. So what to do? Just follow the basic profound wisdom “if you don’t understand it, don’t invest in it.
“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed” said by Jamie Dimon, CEO, JP Morgan.
3: Neither Currency nor Commodity
An absence of clarity about its origin is one of the biggest issues related to bitcoin. If we go a bit back in the past, highly priced metals such as gold, silver, etc. were used as currencies. Later, came currencies printed by central banks and these are called “fiat currencies”. However, bitcoins aren’t controlled by any government and so, it’s democratic. Therefore, it doesn’t fall into the currency category. Neither is it backed by any tangible asset so it can be very risky for businesses, industry, and people to trade as it’s just a formula.
4: An Unregulated Space
Cryptocurrencies aren’t regulated by government entities or backs, unlike other investment avenues. In fact, there’s no authority such as Sebi that you can approach for grievance redressal. Vikram Pandya, Director, Fintech, S.P. Jain School of Global Management has said that “if we buy something with a credit card and get ripped off, it’s easier to call the bank and ask to be compensated. But if the same happens in a bitcoin transaction, it’s impossible to get the money back”.
5: The Issue of Legality
One of the major complications for those who are interested in investing in bitcoins is the confusion its legal status. Though it has not been declared illegal, but cryptocurrency isn’t recognized by any government or central bank as a “currency”.
In December 2013, the RBI issued a press release cautioning traders, holders and users having virtual currency such as bitcoins, about the potential financial, operational, legal, customer protection and security related risks. Furthermore, RBI stated that the investors, holders, traders, etc. dealing with digital or virtual currencies will be doing so at their own risk.