Bitcoin, a cryptocurrency, is an example of the global, decentralized nature of supply chains in the technology industry. check the bitcoin revolution to start bitcoin trading with efficiency, technology, and zero fees. However, Bitcoin and other cryptocurrencies are an emerging asset class with security risks that can lead to paralyzing outages.
Some have considered Bitcoin, Ethereum, and blockchain technologies to be a potential part of their diversified portfolios for diversification and yield potential. However, these technologies have high operational risks and do not protect against market volatility or geopolitical events.
For those who wish to invest in cryptocurrency as part of their portfolio strategy, it is essential to understand the implications on performance that investing in this asset class entails at this point in its life cycle, given both risk and opportunity profiles.
Bitcoin is the original blockchain application. It is an entirely open source, decentralized system in which pseudonymous parties transact with each other over a peer-to-peer network. Participants can exchange wealth using this ledger, secure that no single party controls the network or records their transactions. Let’s discuss some of the significant drawbacks of investing in bitcoin.
Bitcoin is highly volatile:
The price of bitcoin has been highly volatile, increasing steadily until mid-2017. In 2017, the currency experienced volatility in excess of many other asset classes including emerging markets, traditional equities, and commodities. Even more importantly, Bitcoin’s current valuation levels are higher than other popular asset classes, such as gold or precious metals.
It means that Bitcoin’s value is subject to sudden downward movements at any time. It’s worth remembering that if the price of Bitcoin falls quickly, you may not have time to sell before a loss occurs. The past few years show a history of over 100% returns on cryptocurrency investments, quickly followed by 50% or more significant declines within days or weeks.
Bitcoin only have a virtual existence:
Bitcoin is a digital currency with no physical substance. It may sound crazy, but it’s true. Unlike most currencies which derive their value from the faith and confidence of the population, Bitcoin derives its value from the assurance in the computing power that runs its network of global computers that people can use to buy and sell goods and services over a decentralized network.
Bitcoin is unregulated:
Bitcoin is not currently measured by any significant credit-rating agency, which reduces the reliability of the measurement of the currency’s reputation and buyer appeal. Moreover, some governments have expressed concerns about bitcoin because it lacks full regulation. As a result, Bitcoin is a risky investment for several reasons. The first reason is that, like other cryptocurrencies, bitcoin has proven highly vulnerable to hacking and fraud attacks.
Bitcoin is not backed by any central authorities or banks and falls under the scrutiny of governments, which makes them wary of Bitcoins’ potential use for money laundering or funding terrorist activities.
Bitcoin is irreversible:
Bitcoin transactions are never reversed. Once a bitcoin transaction is complete, it cannot be reversed by the sender, and the receiver cannot cancel it. In other words, bitcoin payments are irrevocable once they arrive at their destination. It starkly contrasts with fiat (fiat currency) payments, where a payment can be reversed by people multiple times until it has cleared in its entirety through the payer’s bank.
Bitcoin’s use case in illegal activities:
Bitcoin is a genuinely anonymous payment method, so it has become the currency of choice for people online buying illegal items. It is because the transactions are irreversible, which makes it a perfect tool for criminal activities such as money laundering and illegal arms dealing (it is also used to pay ransoms), and because bitcoin wallets cannot be frozen.
New Economy and Consumer Protection:
The many risks associated with Bitcoin, combined with the relatively anonymous nature of the virtual currency, have caused some countries to consider regulating it as a financial instrument. As a result, many countries have not yet allowed Bitcoin exchanges to operate within their borders, and some have outlawed their use entirely.
The bitcoin network is stored and maintained by decentralized parties making it attractive as a means of exchange. At the same time, however, it also introduces uncertainty about who will maintain the system in the future.
Bitcoin has generated significant interest but is still in the early stages of adoption and acceptance worldwide. It lacks support from many modern financial institutions such as banks, credit cards, and payment processors. It can make transactions more difficult to complete and slower to process than payments made through conventional digital channels.
Bitcoin exhibits all the signs of an economic bubble. It has been on a steady climb ever since its price was $1 in 2009, and it has just surpassed $65000 in 2021.