The Motley Fool is one of the best websites for beginners to learn the basics of investing. I’ve recommended that site many times to many people and will continue to do so. However, that doesn’t mean I agree with everything they say over there. Recently, they published an article titled 4 Reasons I’ll Never Invest in Bitcoin. Its four arguments are below with my comments.
1. Its anonymity is its own worst enemy.
If global governments discover that criminals or terrorists are using bitcoin to fund their activities — and at present there are very few checks and balances in place to weed out this sort of behavior — it could prompt a crackdown. If governments around the world instituted regulations that made it difficult to own bitcoin, we could see prices plunge.
Yes, this is entirely possible. As I’ve talked about many times before, governments hate any form of currency that they can’t track, control, and tax. They hate cash and they hate cryptocurrencies even more. It’s entirely possible that some governments will make bitcoin illegal, though it’s just as likely that they’ll do what Japan did, and just surrender to it because so many people are using it.
Regardless, let’s say your government made bitcoin illegal. So what? Marijuana is illegal in most countries. Does that mean people don’t use it? Does that mean the price of marijuana is low?
Hell no! Indeed, many years ago, before marijuana became legal in my state, I strongly considered being a distributor. This was because I was seeing guys make as much as $4000 per day supplying this stuff. The fact that it was illegal drove the price up, not down.
So, if bitcoin becomes illegal in your country (which is a big “if”), you’ll still be able to buy it, and it’s value might actually go up.
I personally think that governments will eventually be forced to accept the concept of cryptocurrencies the same way the US government has had to accept both marijuana and guns; there’s just too many people owning and using these things for them to ever be made illegal in any practical way. Bitcoin (or some other crypto like Ethereum) will be the same.
Likewise, added government involvement would reduce the prized invisibility that bitcoin holders love so much, which could just as well create an exodus out of bitcoin, hurting its value.
I honestly don’t see how or why this would happen. It’s possible, sure, but I just don’t see bitcoin lovers leaving bitcoin because governments don’t like it. In fact, the opposite is more likely.
2. Security is a major concern.
The network is currently decentralized because it’s run by numerous miners (the people and businesses that run the computers and maintain the system behind bitcoin). These miners are currently paid by block rewards and transaction fees. However, block rewards account for practically all of their revenue for the time being. Over time, these block rewards will decrease in value, meaning that if transaction fees don’t increase, the miners could stop profiting, and bow out. Doing so could centralize bitcoin, since there would be fewer miners, and make it more vulnerable to attack.
Sure, this could happen eventually. Maybe. However, it wouldn’t all centralize in one place. That will never happen. Instead, it could possibly “centralize” in several big exchanges, all of which will be competing against each other. And yeah, at that point, one of those exchanges could be hacked.
But do you see all the “coulds” that would have to happen to actually threaten your bitcoin? Those are a lot of “ifs,” and I’m personally not worried about it. Granted, since I own both bitcoin and Ethereum as speculative investments, I will be paying attention to any possible centralization that may occur, and if it does, and it looks bad, then no problem, I’ll just sell. Not a big deal.
Additionally, a centralized network could allow one bad apple, or a small group of bad apples, who control a large percentage of bitcoin to disrupt the market.
No. That will never happen. Bitcoin will never be “cornered” by any one entity the way the Rothschilds are cornering silver right now. That’s the power of cryptocurrencies; they really can’t be “cornered” by anyone.
3. There aren’t any reasonable ways to invest in bitcoin.
The third issue I have with bitcoin is there aren’t any reasonable “safe” ways to invest. Choose to invest on a no-name exchange, and you risk losing your shirt to low liquidity or hackers.
This is stupid. With a bitcoin (or any other crypto) you don’t need to invest in an exchange. You just buy your bitcoin and store it in a secure wallet, either electronically, on paper, or with a small device.
This excuse demonstrates the old-school thinking of the writer; that an “exchange” with some big investment firm is the only way to “safely” invest in something. Wrong. When I buy gold, silver, a business, or a rental real estate, there is no “exchange” involved. I’m just buying the asset and protecting it as best I can. Bitcoin is the same deal.
4. Most people don’t understand it.
Finally, and perhaps most importantly, a lot of people really have no clue what bitcoin is. I know what you might be thinking: “Great, I can get in ahead of everyone else!” But a misunderstanding about bitcoin, or a complete lack of understanding, could actually yield terrible consequences.
Want an example? How about heightened volatility like we’re witnessing now, or perhaps back in 2013-2014 in the bitcoin marketplace? People might get the broader-stroke concept that bitcoin is a cryptocurrency, but they don’t understand the bigger picture of how it’s challenging monetary theory, or that bitcoin proponents are looking at new ways to secure data and currency transmission. If investors don’t understand these concepts or the risks involved, we could see another Tulipmania-type collapse.
This is a convoluted way of saying that bitcoin could turn into an emotionally-fueled bubble, and then crash. Yep, that’s entirely possible. That is indeed one of the risks you take by investing in any cryptocurrency.
As I’ve said before, bitcoin could even go to zero. It’s possible that bitcoin is the 1.0 and a superior 2.0 is right around the corner that could wipe bitcoin out. (If a 2.0 is going to appear, this would likely be Ethereum, which is why I own that as well.)
Simply put, at this point, the risks far, far outweigh the rewards.
That depends on how you invest in it.
Bitcoin is, without question, a speculative investment. I own it as an investment, but it’s in my speculation bucket which represents only a tiny percentage of my net worth. The vast majority of my investments are in very safe, boring, low-yield stuff that I will probably never lose my money on. So, if my bitcoin and/or Ethereum investments someday go to zero, I’ll be mildly upset, but I’ll be okay; my overall financial position will remain unchanged.
However, if bitcoin goes to $13,000 next year as many experts are predicting, or if it becomes a world-wide currency standard in several years, or if Ethereum becomes a new de facto standard in crypto communication down the road, then my modest investments in these two things will make me a mountain of money and make me very happy.
Therefore, based on the way I’m investing in it, the risks don’t outweigh the rewards at all. Indeed the rewards far outweigh the risks, and I’m very happy about the money I’ve invested in these two things.
Only time will tell on which way this goes.