Bitcoins have been regarded the best invention after the internet. But all doesn’t seem to look good when we analyze the risk involved in Bitcoins & Cryptocurrency as investment options. These risk risks are not normal risk that we deal in. These are huge looking at the recent fall and volatility.
If you analyze the last one year, the first half saw a huge growth. This was the time when WannCry Ransomware attacked. The ransom was paid in Bitcoins and this is no secret. That’s one of the risks that we are talking here in this article.
I have no motive to say Bitcoins are legal or not. I have no knowledge and resources to investigate. All I am sure these are NOT-INVESTIBLE in the present form. And the present form is because of the level of transparency and processes which are characteristics of any currency.
Cryptocurrencies are currencies with no government as an issuer. None of the central bank is in the middle. Organizations like UN or OPEC do not allow trade or track of issuance and payments. No legal body to file a complaint if someone takes advantage of your spending or invade your privacy.
Many websites and people who are in this business or selling or buying Bitcoins make a solid attempt by claiming it safe. They say “I am a techie, and believe me… It’s a solid code”.
My logic (or filmy brain) says there is nothing full proof in technology and it keeps growing. The advancement is the biggest threat. Can’t someone find a vulnerability in the existing codes? Can’t these be broken or hacked? Google or any big IT name has still not claimed that.
What is Cryptocurrency or Bitcoin or Ethereum?
Cryptocurrencies are virtual coins that behave very much like a digital form of gold. Both are limited in supply. They can be transferred between people without going through traditional financial intermediaries. Transactions are verified not by banks but by computers that have access to a universal ledger of already issued currency.
But unlike gold, which is used for jewelry and has industrial uses, Cryptocurrency has no intrinsic value. They derive and retain their worth from investor demand alone.
There is currently $200 trillion in cash, money and precious metals used as currencies in the world. Meanwhile, there’s only $200 billion in cryptocurrencies.
That demand has grown steadily in the past couple of years, and early investors (only) in some of the most popular Cryptocurrencies, such as Bitcoin and Ethereum, have made a lot of money.
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So what is the risk in bitcoin cryptocurrency?
Cryptocurrencies are highly volatile and speculative assets. An investor should not buy them unless they can withstand sharp falls. Or as in gambling, risk what you can afford to lose. But is gambling good? That is the reason no sensible financial planner will link your goals with cryptocurrencies.
There are currently hundreds of different Cryptocurrencies in 10 years, many of them probably won’t be around anymore. It’s hard to predict which is long-term mainstream or has potential.
See Paris Hilton also advertise for one of them. ): LOL)
What can investors do to minimize the risk?
My honest answer is to stay away!!! That’s the best you can do to avoid risk.
Bitcoin companies have hired a lot of online marketing companies to promote bitcoins or the platform through which they are traded.
Here you will find really absurd answers. If someone wants to invest for 1 year for his kid’s fees, they will suggest Bitcoin.
I think many people are rushing to invest in cryptocurrency without appreciating their complexity. They are just going by the stories that surround these currency’s founders who are just start-ups in nature. Investors should also realize that the platforms dealing in cryptocurrency don’t use robust passwords and other security measures. These online accounts may get hacked and data may be stolen or sold.
“Fortunes have been made in cryptocurrencies and much more will be made in the future. But just like the Internet boom in the 90s, there will be a lot of scams. Let me say it right now: 95% of cryptocurrencies are scams.” – James Altuchr
Currencies have geographical boundaries (control, not restrictions in trade), but cryptocurrency belongs to no one and hence has no boundary. No one is legally bound to honour it.
Do you think you can plan your retirement with Bitcoins? Can you pay your kids college fees using virtual currencies or what if your employer starts giving salary in Litecoins? Why don’t Amazon or Alibaba start accepting it?
I am yet to get answers to these questions.
Cryptocurrency is a BIG NO.
Many renowned financial experts & economy watcher’s have come on open media, staked their reputation and claimed virtual currency as FRAUD. Some of them are here:
Reserve Bank Of India RBI has cautioned twice against these:
They are still to take a decision whether to allow investors to invest and regulate companies offering to buy & sell cryptocurrencies. I am not using or advising it, untill “my country’s bank” say OK, .
Hope this gives you courage against the herd which is crying that they made a killing in dealing with cryptocurrencies. What you have they do not have – a peaceful sleep and a goal fulfilled life.
Share your views below and update me if I am wrong or biased.
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(Followup Note 06/12/2017: The Bitcoin crossed 11k$ marks and RBI again on 5 Dec 2017 warned the general public against Bitcoins and companies providing bitcoin trading platforms in India)