Introduction
There are several reasons why you shouldn’t invest in bitcoin. First, it is a highly volatile asset with short factors dictating its value. Second, there are severe outside threats to the currency. Finally, it is not a haven. It is a very high-risk asset and isn’t suitable for asymmetric risk profiles. With the top trading tools, quick payouts, and outstanding customer support, this Link will help traders on their bitcoin journey.
Unpredictability
While bitcoin is a significant investment, it’s not without risks. A popular hedge fund manager, John Paulson, made $4 billion shorting subprime mortgages in 2007. In the movie The Big Short, hedge fund manager Michael Burry complains that no one is paying attention to the leverage of cryptos. He argues that bitcoin is on the brink of collapse and should be avoided. Another critic, Nassim Taleb, argues that bitcoin is a Ponzi scheme.
Liquidity
Liquidity is a critical element of the cryptocurrency market. Without it, there’s no way to know how much a particular asset is worth. With publicly traded companies, you can get financial data and management commentary. With bitcoin, however, you can only have transaction settlement times and a total circulating token supply. This isn’t enough to tell you anything about the actual value of a bitcoin.
In addition, a lack of liquidity makes buying and selling crypto assets difficult, which can slow down your investment process. However, if liquidity is high, there are lots of buyers and sellers available, which reduces the time it takes to purchase or sell a given asset. Also, with high liquidity, it’s easier to maximize your profit if you can sell or buy a particular crypto asset quickly.
On June 18, Bitcoin dropped to a 52-week low of $17,708. That fall came on the news that cryptocurrency companies were facing a liquidity crunch. For example, cryptocurrency lender Celsius froze customer withdrawals, citing “extreme market conditions” in their statement. A filing followed this for Chapter 11 bankruptcy protection. The firm’s collapse is a foreshadowing of the 2008 mortgage debt crisis.
Fraud
If you’re considering investing in bitcoin, there are several reasons to avoid it. First, there’s the issue of fraud. The SEC’s Office of Investor Education and Advocacy and the Commodity Futures Trading Commission’s Retail Strategy Task Force warned investors to avoid investment scams. These agencies recommend investors carefully examine the information they find online before deciding. Be especially wary of websites that promise high returns with little risk.
Another wrong reason to invest in bitcoin is the lack of regulation. Bitcoin lacks a central bank, regulatory body, or deposit insurance. Without such controls, fraud and theft are inevitable. Fortunately, there are ways to limit fraud, and a suitable security protocol and a quick application process will help keep you safe.
Many scams offer bitcoin at prices much lower than the market price. These sites may even advertise them as 5% below market value. They might also use fake crypto products that promise massive returns. The scammers often require significant initial investment and ask you to invest more money. Then, when you try to withdraw your money, it may disappear.
Unregulated space
In an unregulated space, Bitcoin is vulnerable to hackers and price manipulation. Before futures markets, hackers shorted Bitcoin, infiltrating exchanges to drive prices down, then buying when prices were artificially low. Although the creation of futures markets was supposed to reduce this volatility, trading volumes have been quiet, and investors are hesitant to invest in the currency. Regulators are playing catch-up.
High return potential
One question that many investors ask is whether the high return potential of Bitcoin is worth the risks. The answer depends on your time horizon. It is generally not a good idea to invest in volatile assets like Bitcoin when your time horizon is too short. If you invest in stocks, you should invest for at least three years to ride out the volatility and reap the rewards.
Investing in Bitcoin can be a profitable and lucrative option if you can handle risk and the general market outlook. However, long-term, diversified investments are more stable and have lower volatility. For this reason, investors should diversify their portfolios to protect against loss. As with any investment, a high return potential is not a guarantee of a high return.
Conclusion
First and foremost, bitcoins are high-risk investments. Whether you’re buying bitcoin for personal use or planning to sell it, you must know your level of risk tolerance. If you’re uncomfortable with volatile assets, you should look for other types of investments instead. Besides, it is difficult to predict future price movements.
Second, the value of cryptocurrency is unproven. As they are traded from person to person with no accurate regulation, there’s no way to know how much these cryptocurrencies will appreciate. Likewise, there’s no way to calculate the returns as you can with growth stock mutual funds. It’s not a good idea to gamble with your financial future.
