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.

27 thoughts on “The Arguments Against Bitcoin

  1. Caleb, what sources do you tend to follow in regards to the crypto markets?  Any particular people or sites that you find most reputable?

    Solid post, by the way.  In regards to the original writer’s fourth point, the same could be said about any technological advancement.  I’m sure the automobile was looked upon with the same speculation at its dawning as we currently look at cryptos.  Yeah, it could be a “fad”, but like you said, best to have a little skin in the game just in case it’s not.

  2. Caleb, what sources do you tend to follow in regards to the crypto markets?  Any particular people or sites that you find most reputable?

    There are no “reputable” sites or people who talk about cryptocurrencies since cryptocurrencies is a fringe topic. The entire concept of concurrency is a RISK, so no matter what you do you’re risking your money.

    Some of the people/sites I follow are:

    https://www.youtube.com/channel/UCqXZf0F4GLSX1QXBUgPXhqg

    https://www.halfpasthuman.com/

    https://www.youtube.com/user/RoadtoRoota

    https://www.youtube.com/user/jsnip4

    Just beware there are a lot of weirdos in this space, including some of the guys I read. Be very, very careful.

    Yeah, it could be a “fad”, but like you said, best to have a little skin in the game just in case it’s not.

    That’s my view, yeah.

    How should people without a lot of income approach cryptocurrencies?

    Depends on what your goal is.

    (And, of course, you should set a goal to increase your income.)

  3. I’ve been told if the government made bitcoin or any cryptocurrency illegal, they could make it very difficult to withdraw any funds to any bank account from exchanges. This shouldn’t entirely destroy it of course, but it would significantly affect it being anything more substantial.

  4. I’ve been told if the government made bitcoin or any cryptocurrency illegal, they could make it very difficult to withdraw any funds to any bank account from exchanges.

    Exchanges within that country. So if the USA made bitcoin illegal, you couldn’t use a USA exchange to get your US dollars. So you’d just use a Canadian or Norwegian exchange to get your US dollars. It’s a minor inconvenience and not a big deal, particularly for bitcoin users who tend to be more tech savvy.

    Again, this is why it would be very difficult to make bitcoin illegal in any one country. The entire planet would have to do it at the same time, which if course isn’t going to happen.

  5. Aaaaaand this marks the top in Bitcoin price.

    As a trader, I’ve seen conservative, mature twitter traders who never talked about Bitcoin start mentioning it. Week-in-review prime time TV shows talking and debatingabout bitcoin for half an hour (with very little idea, of course). Telegram groups growing to hundreds of members in a few weeks packed with naive “blockchain makes you money” people. And now this!

    The article is alright. I just have to wonder at the perfect precision with which sentiment follows price and anticipates a turn around. If there is any mainstream Economics idea that Bitcoin dispells, it is that you cannot see a bubble in real time. 😉

    (Full disclosure: I’m short bitcoin)

  6. The main misunderstanding that people have about bitcoin is that they think it is anonymous. It isn’t.

  7. There are no “reputable” sites or people who talk about cryptocurrencies since cryptocurrencies is a fringe topic. The entire concept of concurrency is a RISK, so no matter what you do you’re risking your money.
    Some of the people/sites I follow are:
    https://www.youtube.com/channel/UCqXZf0F4GLSX1QXBUgPXhqg
    https://www.halfpasthuman.com/
    https://www.youtube.com/user/RoadtoRoota
    https://www.youtube.com/user/jsnip4
    Just beware there are a lot of weirdos in this space, including some of the guys I read. Be very, very careful.

    I’ve actually been following those guys for a few months as well, so I’m glad to know that they’re at least worth listening to.  And yes, they are some odd characters.

    Clif is certainly one of the (seemingly) smartest people I’ve heard in regards to they cryptos, but when the sci-fi/alien talk starts coming out, the conversation turns to pure entertainment at that point for me.

  8. Aaaaaand this marks the top in Bitcoin price.

    Oh really? Okay. It’s now June 18th, 2017, and bitcoin is at $2570. It will never get higher than that, huh? This blog will be up on the internet for at least another ten years, and your comment will still be there. Let’s see if you’re right.

    Heh.

    The main misunderstanding that people have about bitcoin is that they think it is anonymous. It isn’t.

    Correct. Technically it is not to anyone who is hacker-skilled and has a lot of time on their hands. That’s why there are true anonymous crytpos like darkcoin as competition to bitcoin.

  9. I don’t think the idea that you can just go overseas to sell your btc will work. You can be punished for breaking US law overseas. Look at all the banks that were fined for violating US laws even though the US has no jursiticiton. Examples include french banks doing business with Iran and Swiss banks working US citizens to avoid and/or evade tax. Also look at laws like FATCA. The US is basically saying that other countries have to enforce there laws despite a lack of US juristiction, and they do. Thus, if the US really wanted to shut down exchanges it could by saying that any country that allows btc can’t bank in dollars.

     

    Also governments can take over bitcoin via a 51% attack. If you own 51% of the mining power you can rewrite the rules, double spend, ect. Governments can easily afford to buy or repurpose computing power to put an end to BTC if they wanted to. Also over 51% of the mining power is in China. If the government wanted to they could sieze mining companies for national security reasons and take control of bitcoin. Never mind the many other things they could do such DDoSing the network, siezing nodes, ect.

  10. If you take all the arguments against the internet from the 90s and replace the word “internet” with “cryptocurrency” – then you have the most common objections against bitcoin today.

    @BTCGuy
    Your Thoughts in proof of stake?

  11. Hey, Mr Jones, I’m talking about this particular price cycle. 🙂

    I’ve seen them all since 2013. The first time I heard someone on the radio talking about Bitcoin it missed the April ’13 top by 2 hours. I know that “all-time” means “a few months” in Bitcoin. I have no opinion on whether Bitcoin will ever surpass $3000. I’m just talking about the craziness of the last few weeks. Including you writing 2 articles on Bitcoin. Not that there’s anything wrong with that, just that it is a huge omen of excessive popular attention.

    I COULD wager that, within the next 6 months, the low will be farther from $2600 than the high. That’s what I mean by “top”. 😉

  12. “Just beware there are a lot of weirdos in this space”

    I didn’t even make it a minute into one of the videos before the speaker started talking about chemtrails.

  13. I don’t think the idea that you can just go overseas to sell your btc will work. You can be punished for breaking US law overseas. Look at all the banks that were fined for violating US laws even though the US has no jursiticiton. Examples include french banks doing business with Iran and Swiss banks working US citizens to avoid and/or evade tax. Also look at laws like FATCA.

    That is a problem for banks and exchanges, not for individuals. Worst case you’d dick around and find a small Japanese exchange (for example) to sell your bitcoin to get Yen (for example) and then covert that Yen to US dollars. Yeah, I agree that’d be a huge hassle, but it wouldn’t destroy your bitcoin value. (As I said above, it might actually help it.)

    over 51% of the mining power is in China. If the government wanted to they could sieze mining companies for national security reasons and take control of bitcoin.

    Not sure how a single government taking control of bitcoin miners negatively affects the value of my bitcoin that has already been mined.

    Hey, Mr Jones, I’m talking about this particular price cycle. ?

    There ya go. Much better.

    As I’ve already said several times, temporary cycles are meaningless to long-term buy-and-hold investors like me. I intend on hanging on to my bitcoin and Ethereum for many, many years. I don’t care what happens to bitcoin this year or next.

    I didn’t even make it a minute into one of the videos before the speaker started talking about chemtrails.

    Haha! Told ya!

  14. Hell no! Indeed, many years ago, before marijuana became legal in my state, I strongly considered being a distributor.

    Hahaha Caleb!!! That made my day!

    And then pay with Potcoin: https://www.youtube.com/watch?v=Tyqw42dCLuQ   😉

    This is actually a real coin. You can look it up on Coinmarketcap.com
    But with the rise of cryptocurrencies there has been a huge influx of ponzi schemes disguised as real cryptocurrencies. Rule of thumb: if it’s not listed on Coinmarketcap.com it’s fake.

     

     

  15. It’s pretty obvious to me that:

    1. There’s huge demand for decentralized currencies, but adoption is lagging.

    2. While the risk factors listed are real, each virtual currency is at risk by itself. One could hack Ethereum (already happened), one could gain 51% control of Bitcoin (ghash.io did at some point), important parts of the economy could go down (mtgox, Silk Road, whatever), one could outlaw something (also happened in some countries), overly eager investors could crash the price, hoarders of Bitcoin could crash the price. But all these things would only affect a particular currency, investments in others would hardly be affected.

    3. Thus I make the conclusion that at least some virtual currencies will explode in price, probably when some major company starts accepting them as payment triggering an avalanche in adoption. It’s also probable that at least some virtual currencies will fail utterly, but diversification is as valid a strategy against that as always.

    (Full disclosure: I own not a single satoshi of virtual currency, just making predictions from my couch.)

  16. This criticism seems to come from the assumption that traditional currencies don’t have any risk.

    His points about risk of hackers and the fact that most people don’t understand how the system works (and to a degree, liquidity), could easily have been written about keeping your US dollars in a bank or investing in the stock market

    (Full disclosure: I own not a single satoshi of virtual currency, just making predictions from my couch.)

    Same here.

  17. This criticism seems to come from the assumption that traditional currencies don’t have any risk.

    Precisely. (That’s exactly why I own gold and avoid using traditional banks.)

  18. I think that crypto-currencies/block chain is going to be one of the major linchpins that allow the world to move away from a world economic system in where the US Dollar is a central figure head. There’s going to be a lot of resistance to this, as we’re talking about undoing a century’s worth of a financial paradigm. 40 years of that being the free money machine that is FIAT currency.

    No. That will never happen. Bitcoin will never be “cornered” by any one entity the way the Rothschilds are cornering silver right now.

    Could you elaborate or link some reading material on that? I’d be interested to learn more.

  19. I think that crypto-currencies/block chain is going to be one of the major linchpins that allow the world to move away from a world economic system in where the US Dollar is a central figure head.

    I agree. I don’t know if that will be bitcoin or some other crypto, but I agree.

    I see no literally no scenario in the long-term for governments to forever resist private, encrypted, electronic currency. As you said, it’s going to take quite a while and the movement will be slow (perhaps take decades), but I can’t see it not happening.

    Could you elaborate or link some reading material on that? I’d be interested to learn more.

    https://seekingalpha.com/article/4066049-jpmorgan-trying-corner-silver-market

    In other words, buy and hold silver. It’s at an artificially low price right now and is a better investment than gold. (Note: Buying silver like this is a speculation, not an investment, so be very careful.)

  20. Caleb, why do you speculate that silver will rise in the long term and that it is a safer investment than gold? Is there a way to buy virtual silver, not in its physical form?

  21. Caleb, why do you speculate that silver will rise in the long term and that it is a safer investment than gold?

    I didn’t say it was a safer investment (no speculation is “safe”). I said it was better. JP Morgan is cornering silver while using shenanigans with paper silver to keep the price artificially low. Once they have enough, they’ll let the price of silver rise, which means that anyone who buys silver now (it’s only at $16 an ounce! insane!!!) will make money. Again note: this is a speculation, I could be completely wrong, and you could lose your money. Be very, very careful.

    Gold is more of an inflation hedge and insurance policy than an investment. You (likely) won’t get rich with gold; you’ll just be protected against inflation and currency devaluation.

    Is there a way to buy virtual silver, not in its physical form?

    Yes, you can buy silver futures and silver ETF’s, but I would not recommend them, as they are very complicated, being manipulated, and are based more on what banks and mining companies are doing than the actual price of silver.

  22. Yeah, we should totally buy silver! As an added bonus, we could even make silver weapons if werewolves ever show up on earth.

    Now seriously, I don’t think the appearance of a superior bitcoin 2.0 would make the value of bitcoin 1.0 plummet. Some people may want to own both just in case.

  23. Aaaaaand this marks the top in Bitcoin price.

    I responded:

    Oh really? Okay. It’s now June 18th, 2017, and bitcoin is at $2570.

    You responded:

    Hey, Mr Jones, I’m talking about this particular price cycle.

    Today, 8/5/17, still in the price cycle, bitcoin just surpassed $3300.

  24. I don’t know what you’re getting at. You ignored my wager, which wouldn’t even be decided until 5 months from now. But let me remind you that us professional traders were outcome independent before it was cool. 🙂

  25. Did you miss the price going to $1800 (from a $2970 top) after my comment and not breaking to new highs until almost 2 months later?

    That is a top in Bitcoin time.

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