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Monday, November 9, 2020

Why Bitcoin Cryptocurrency is a Bad Investment: 5 Reasons Why You Shouldn’t Invest in it

I am pretty sure that people out there have heard about Bitcoin. Some even went to purchase Bitcoin as an investment. They believe that Bitcoin will keep increasing in value because of its limited supply. 

If you have no clue what bitcoin is, I am here to explain it to you. Bitcoin is a digital currency created in January 2009. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.

Bitcoin has indeed increased in price these past several years. Some even made a fortune investing early into Bitcoin. Fearing of missing out, many people invest their life savings into Bitcoin. I have many friends who believe in Bitcoin and have invested their money in it.
I am not against blockchain technology that is a decentralized ledger of all transactions across a peer-to-peer network. I believe that blockchain technology is a great invention. Using this technology, participants can confirm transactions without a need for a central clearing authority. However, I am against investing my money into Bitcoin. This article will cover the reasons why Bitcoin is a bad investment and why you should avoid investing in it. Bitcoin does not have any intrinsic value to it, and it is just a hype where many investors decided to invest in it. 
1. Bitcoin is not really scarce
First of all, Bitcoin is only as scarce as its programming dictates. Unlike physical commodities such as metal, gold, they are limited to what can be mined from the Earth. Bitcoin, on the other hand, is limited because of computer programming. It is not out of the question that programmers, with overwhelming community support, could choose to increase bitcoin's token limit at some point in the future. Thus, bitcoin offers the perception of scarcity without actually being scarce.
I do not believe Bitcoin has any utility. It is not like natural resources, where it can use for something. It is just a digital currency that many people have speculated the price value of it. 

2. Neither Commodity nor Currency.
The lack of clarity about its origin is another big issue related to Bitcoin. In the olden times, highly-priced metals such as silver, gold were used as currencies. Then came currencies printed by the governments (central bank), which are called the fiat currencies. It is very risky for people to trade or invest in Bitcoins, as it is just a formula that is not backed by any tangible asset.
Personally, I would prefer people to pay me in cash rather than Bitcoin. I do not see the value of keeping Bitcoin as an asset. 

3. Few tangible means to value Bitcoin.
Another problem with Bitcoin is that there is no tangible way to value it as an asset. For example, if you want to buy a company's stock, you can see the income statements, its balance sheet, and read about business management. There are values to investing your money into stocks since each share traded in the market represents a small percentage of the company.
With Bitcoin, there is no tangible data for investors to wrap their hands around. There are transaction settlement times and total circulating token supply, but neither of these figures tells us anything about the value or utility of Bitcoin.
Value Investors such as Warren Buffet, one of the most successful investors in the world, mentioned how Bitcoin has no value. He believes that Bitcoin does not produce anything. He considers purchasing Bitcoin as a speculation and not an investment. 
I am not investing a single dime in Bitcoin. I believe Bitcoin has no value and does not produce anything. Bitcoin produces no cash flows, no dividends. It is not a value-producing asset. The reason Bitcoin increase in value is because people are bidding more of their money to purchase it. You are basically gambling when buying Bitcoin, hoping that another potential buyer is willing to pay a higher price for it. 

4. Bitcoin is Very Volatile.
The price of Bitcoin is very volatile. It can go up and down in value in a very short term period. Because it is volatile, it isn't very easy to use Bitcoin for a transaction. For example, let us say the current price of Bitcoin is $10,000, and you want to sell your car for $20,000. Do you think the seller will accept 2 Bitcoin as payment? I am pretty sure that the seller prefers a payment method of using cash. This reasoning explains why Bitcoin is very unstable and is very difficult to use it for a transaction. 
I will not want to accept Bitcoin as a currency since the price is volatile. It is very difficult to use Bitcoin as a currency since no one will want to accept it. Moreover, it is very inconvenient for me to accept Bitcoin as a payment method. I could end up losing money if the price of Bitcoin fell the next day. 

5. Do not Invest if You Do Not Understand.
I am pretty sure that many of you do not even understand what Bitcoin is. If you have no clue what you are investing your money in, please stay away from it. Till today, I have no idea what Bitcoin really is. I do not know how Bitcoin works and operates. Because of my lack of understanding of Bitcoin, I stay away from investing in it. I do not particularly appreciate investing in something that I have no understanding. It is very risky to invest your hard-earned money into something that is complex. 
When I see Bitcoin, it reminds me of the Tulip Mania that happened in the mid-1600s. Tulipmania was a period in the Dutch Golden Age during which contract prices for some bulbs were traded. People during that time have valued Tulip Bulb at a ridiculous price. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person's salary. Eventually, these tulip bulbs became worthless in February 1637 as the market for tulip bulbs went downhill. The buyer announced they could not pay the high price previously agreed upon for bulbs, and the market fell apart. 

Bottom Line
If you have spare money to invest, please use the money to invest in something tangible. I would recommend not investing a single penny into Bitcoin. I have many of my friends who purchase Bitcoin, hoping they can make a lot of money. I wish I can explain the reasoning to not invest in Bitcoin to my friends who invested their money in it. 
Even when Bitcoin's price has increased by a lot, I stay away from investing in it as a value investor. I do not care if someone has made tons of money from investing in Bitcoin. I have no clue and little understanding of how Bitcoin works. This reason let me avoid trying to join the Bitcoin hype.

I have no idea where Bitcoin's price is going to be in the future; however, I am not investing in something I have no understanding. Bitcoin can possibly go up in value, but I am firmed with making my decision not even to touch it as an investment. 

I hope by writing this article, I can convince readers not to invest in Bitcoin. If you want to invest in your spare money, invest in things you understand. Do not just follow the crowd, and actually use some critical thinking before you invest.

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