Termed ‘digital gold’ by its advocates, Bitcoin has in the last 24 hours had an increased value above $57,000 on major exchanges and digital currency indexes. Created in 2009, Bitcoin uses encryption and a blockchain database that enables the speedy and anonymous transfer of funds outside of a traditional centralized payment system.
Bitcoin investment is globally reputed as one of the quickest ways of becoming rich as its value continues to have a surge with an envision that it might be worth $100,000 by the end of 2021. But it is important to weigh in and give some reasons why investing in Bitcoin might not be the best form of investment for individuals and corporate entities.
1. Bitcoin Is Extremely Volatile
Investing in Bitcoin involves high risk, making the prices of the cryptocurrency extremely volatile. In recent days, Bitcoin has been hovering over $56,000— a remarkable upswing from the low $40,000 range seen in September.
Even with its usual fluctuations, Bitcoin has mostly been on the rise following a drop under $30,000 in July. It could be recalled that Bitcoin hit an all-time high of $66,000 in April, and the recent movement highlights the cryptocurrency’s volatility in a time when a large number of people are interested in getting on the bandwagon.
In the weeks between the most recent July low point and its high points in recent weeks, Bitcoin has risen steadily, with several daily highs above $55,000. Again, Bitcoin is very volatile, so these ups and downs are par for the course.
However, experts are of skepticism about the merit of investing in Bitcoin due to its inadequate ecosystem enabling a fundamental analysis. Therefore, people invest in imperfect information only by being lured with high prices.
2. Bitcoin Is Not Regulated By Law
Just like other investment structures, Bitcoin or other cryptocurrencies are not regulated by government entities or banks. So when there is a need for grievance redressal, there is no appropriate authority to approach.
Unlike the fiat currency transaction, it is impossible to recover the last money ripped being off from a Bitcoin transaction.
3. Bitcoin Has Proximity To Ponzi Scheme
Away from the operational issues characterized by trading Bitcoin, there is also a high risk of fraud. The misinformation and lack of clarity concerning Bitcoin trading still linger and fraudsters are leveraging on this loophole to launch Ponzi schemes, which gives a falsehood promise of ‘guaranteed high returns’.
4. Bitcoin Is Neither A Commodity Nor Currency
The lack of a lucid understanding of the origin of Bitcoin is a big issue. In ancient times, high-valued metals like gold and silver served as the main financial instrument of trade. Printed currencies later came to light by the government, which are called ‘fiat.
Though Bitcoin proponents lay claim to the cryptocurrency being ‘mined’ using a complex mathematical formula, but they hesitate in tagging it a commodity. Thus, Bitcoin doesn’t fall into the ‘currency’ category either.
Sequel to these facts, it can be very risky for businesses, industry, and people to invest in Bitcoin as it is just a formula, which is not backed by any tangible asset, but by sheer demand.
5. The Issue Of Legality
Confusion about the legal status of Bitcoin is one of the impeding factors dissuading investors from it. While the cryptocurrency has not been declared illegal, it has not been officially recognized by the central bank of most countries, especially in Africa.
It could be recalled that the Central Bank of Nigeria (CBN) in February 2021, placed a ban on cryptocurrency as a financial instrument of transaction in Nigeria. This came after the CBN in 2017 issued a press release cautioning users, holders, and traders of virtual currencies, including Bitcoin, about the potential financial, operational, legal, customer protection, and security-related risks.
Bitcoin investment is gaining momentum on daily basis even with people not having handy information on how it operates, but some global bankers and experts have warned investors against investing in the cryptocurrency because they think it is nothing but a bubble that is ready to burst. Hence, if global bankers don’t understand the phenomenon, retail investors might not have much of a chance either.