Between 2014 and 2018 the price of Bitcoin rose by up to 23 times mainly due to its growing popularity at that time. With those astronomical prices, early adaptors of the cryptocurrency are thought to have made incredibly huge amounts of profit. A report in Forbes quotes investment guru Warren Buffet as saying that trading in Bitcoin is not an investment but is outright gambling.
An analysis piece appearing on www.recode.net has gone further to brand Bitcoin an outright scam. Other analysts have called it a Ponzi scheme. But is Bitcoin really any of that? In this write-up, we take a look at “gambling or investment: the truth about Bitcoin & cryptocurrency trading”.
Characteristically, most investments are speculative including forex and stocks. When it comes to Bitcoin, its speculative nature makes some people doubt its authenticity as a real investment. That looks like double standards, given the speculative nature of most types of investment.
Considering the fact that investors have to rely on cryptocurrency exchanges, investing in Bitcoin is not considered as reliable as trading in stocks, for example. If anything, stock trading relies on the analysis of the performance of a company’s stocks before you decide to invest in it.
Bitcoin trading is fraught with high risks. To void losing their money, some individuals have adopted less risky trading strategies. But the risk involved in Bitcoin trading isn’t just about the losses an individual can make when the prices dip. For instance, industry estimates point to the fact that over 10 percent of the money raised in initial coin offerings (ICOs) is lost to fraud. While that may not be directly be linked to Bitcoin, it points to the lack of trust in cryptocurrency trading.
The proliferation of new cryptocurrencies has exposed investors to the risk of losing large sums of money. So far, there are over 1,500 cryptocurrencies in the market today with a “value” of more than $300 billion. However, some consider the value in Bitcoin to be nothing but hypothetical. Here is why:
- Bitcoin cannot be considered a means of payment. When it comes to acceptability as a means of payment, Bitcoin and the other cryptocurrencies have a very limited reach. Some experts consider its ability to change the value by more than 10 percent in 24 hours to be uncharacteristic of real currencies.
- Bitcoin isn’t a store of value. The reason any fiat currency is considered a store of value is its ability to remain stable for long periods of time. That cannot be said about Bitcoin and altcoins which have high price volatility. Also, putting all your trust in cryptocurrency exchanges the same way you would a bank or forex broker is untenable.
- Bitcoin isn’t a commodity. Unlike tangible commodities such as gold, Bitcoin has no value in and of itself. Its value arises from the expectation that other people will buy it in the future. That’s why investing in Bitcoin is speculative in nature.
- The untrustworthy nature of Bitcoin exchanges. Not all cryptocurrency exchanges are legitimate businesses. Some of them are out to defraud investors and even those that are legitimate are prone to losses due to hacking. For instance, the hacking of Nano tokens in February 2018 is thought to have led to a loss of up to $195 million.
Thanks to Bitcoin’s lack of regulation by governments and central banks there fear that it is increasingly being used by shadowy internet-based businesses. The risk of loss is made worse by the fact that Bitcoin and other cryptocurrencies are prone to the fraudulent activities of hackers. These criminals often target Bitcoin mining, cryptocurrency wallets, as well as Bitcoin exchanges. As such, some of the industry experts have said that investing in Bitcoin is worse than casino gambling.
Yet there are some who think that Bitcoin is the currency for the future. It isn’t just Bitcoin itself, but the technology behind it that continues to fascinate players in the financial markets. If put to good use, the blockchain could revolutionize the banking sector.
Clearly, Bitcoin has gotten a bad name due to its obscure nature and lack of regulation. It cannot be considered a medium of exchange or store of value in the strict sense of it. That’s due to its volatile nature. Unlike commodities like gold, it has no value in and of itself. For that reason, industry experts agree that buying Bitcoin isn’t an investment but gambling.