Bitcoin is a kind of “digital cash.” The idea is that it’s a decentralized form of currency, requiring no bank or single administrator. The new currency has been met with a lot of hype but an equal amount of skepticism. Some say it’s a financial revolution; others say it’s just a bubble.
So should you take a chance and invest in Bitcoin or other cryptocurrencies? We explore a few viewpoints below.
While a handful of fortunate people invested in bitcoin and became billionaires, there are also many skeptics criticizing it. Famous investor Warren Buffet has said that Bitcoin is not a real investment, that it produces nothing, and in an interview with CNBC, he called the cryptocurrency “rat poison.” Bill Gates also told CNBC that he would bet against Bitcoin’s success. For many potential investors, the opinion of these titans may be enough to discourage them from buying Bitcoin.
There are also a handful of specific risks to be aware of. First, many economists believe Bitcoin is no more than a bubble, meaning your investments would clearly not be safe if the bubble bursts. Further, Forbes recently argued that Bitcoin lacks the infrastructure and regulation of regular cash, making your money ultimately vulnerable.
The so-called “crypto-boom” drew many inexperienced investors. On the bright side, at least, Bitcoin served as the gateway to the financial world for them. However, many newbies lost a lot after investing in bitcoin. Some even lost their cars, houses, and savings.
Another problem is that other technocrats make cryptocurrencies as well, organizing Initial Coin Offerings (ICO) to gullible gold diggers. Many of these people hoping to win big instead became victims of scams. Such incidents gave cryptocurrencies a bad name.
The main thing that makes bitcoin attractive is the blockchain technology. It is a decentralized system of financial transactions, encouraging transparency among investors. In contrast to most financial institutions and stock exchange markets, nobody controls the price in a decentralized market. Thus the cost can rise and fall depending on the supply and demand, with a fixed number of bitcoins per time mitigating inflation rates. It is like Adam Smith’s invisible hand taken digital form. Many believe this technology is revolutionary and could potentially change the direction of the financial world in the future.
Many believe that the market is too strongly manipulated by the big banks and traders, and that the public would have a more level playing field with cryptocurrencies.
Another significant benefit that bitcoin could give to the public lies in the digitization of assets. If cryptocurrency becomes the mode of payment generally, global trade is more natural since distance and time are smaller in the digital space. Money laundering is immensely difficult, if not downright impossible, due to the blockchain containing all the records of transactions.
Diversify your financial portfolio
Since there are conflicting opinions about bitcoins, it is best to diversify your portfolio. A financially mature individual does not put all his or her eggs in a single basket. Invest in other forms of revenue. Save in a bank. Enroll in an insurance premium. Buy properties. Open up a business.
And if you do decide to invest in cryptocurrency, don’t invest in bitcoins alone. There are other virtual coins which show good potentials like Ethereum, Ripple, and Litecoin. It’s up to you if you go for mining, trading, lending or all of the above. Each cryptocurrency-related activity demands different types of investment.
Having a combination of tangible and intangible investments signifies the investor’s knowledge and skill in investing. You will never go wrong with a well-diversified portfolio, but categorize bitcoin among the high-risk investment section. .
Without knowledge about the financial world, bitcoin is not an investment. It’s a gamble. Lastly, always keep in mind the ultimate investment mantra: “Only invest what you can afford to lose.”