If you have never heard of Bitcoin or other cryptocurrencies, the only question is where have you been all this time. Digital currency has become a “hot cake” in the conversations of the last half year. The reason for the hype is the growth of bitcoin in the price from several hundred dollars to $ 17,000 for several months in 2017.
Imagine that you bought five bitcoins in December last year, when each theoretical “coin” cost about $ 766. If you held your investment at $ 3,830 until Bitcoin jumped below $ 16,000 at the beginning of December this year, you would have turned your investment into $ 80,000. Not bad yes?
But what if, like most people, you did not buy bitcoin? At the moment, you may have a serious fear that you have missed something important. Regardless of whether you had money to invest in bitcoin, when you first heard about it, you may have a feeling of regret. There is good news for people like you: the opinion of experts about cryptocurrency is such that the mania around Bitcoin should be completely ignored. These are recommendations from real experts with education and work in the market, not the advice of your neighbor who invested $ 500 in bitcoin and now thinks he is a genius..
When experts who know something about the financial market and economy talk about bitcoin, we should listen. Here are eight reasons why some experts believe that we should ignore the hype around bitcoin and other cryptocurrencies. At least in the current period.
1. Bitcoin is an obvious bubble
The financial bubble, according to Investopedia, is “an economic cycle characterized by a rapid increase in asset prices with a subsequent reduction.” Remember that what grows fast often falls very much. Bitcoin already demonstrates this and at the moment its price is $ 6,200 instead of $ 17,000.
Some experts even call bitcoin an obvious bubble. Recently, Nobel laureate economist Paul Krugman shared his thoughts on bitcoin with Business Insider. To say that he considers Bitcoin a bubble would be an understatement. In fact, Krugman says the Bitcoin bubble is “even more obvious than the housing bubble that originated in the US”.
But if it’s a bubble, when will it crash? Like everyone else, Krugman does not know. Since Bitcoin is not tied to real estate, stocks, or anything tangible, Paul says we are waiting for a climax, as in a cartoon about a wild coyote. That is, at some point, Bitcoin will slide off a cliff, and everyone will look after it down. Only then will we understand that there is just nothing below.
Financial adviser Tom Diem says the Bitcoin situation is reminiscent of tulip mania. This is a historic bubble that took place in the 1600s when tulips were brought from Turkey to the Netherlands. The local population was so carried away by the new flower that they began to sell bulbs like crazy. Where tulip bulbs once cost as much as a simple edible onion, prices soared up to the cost of entire houses for one future flower. Of course, all this eventually collapsed, and the tulip bulbs suddenly began to cost as much as we used to give for them now. This opinion of experts about cryptocurrency is one of the most important.
2. Bitcoin is controlled by loss of profit syndrome
While Bitcoin has some advantages as a currency (low fees, easy transfers, anonymity), many investors really know little about it. Therefore, FOMO syndrome (Fear of missing out) is the main reason for the sudden increase in the value of the currency.
“And this is a serious problem,” said financial adviser Anthony Montenegro. He notes that many investors who raise the price do this simply because they are more afraid of missing out on profitability than losing money. They succumbed to fear of losing profits, but you should not believe the general hype. As a financial adviser, Anthony believes that sustainable development brings prosperity and hasty speculation brings poverty. “Plan wisely and invest accordingly,” he says. And perhaps recall the wise words of Warren Buffett: “Fear when others are greedy, and be greedy when others are afraid”.
3. Bitcoin is not supported by the state
Financial adviser Mikhail Solari says one of the main problems is the fact that bitcoin, like other cryptocurrencies, is not tied to the country. If the National Bank does not support the currency, what will happen if something goes wrong?
Former hedge fund manager Todd Thresidder also says that while Bitcoin has the advantage of working without government control, it is also confusing. The state must manage the currency if it is planned to implement a competent financial policy and not only.
Tresidder notes that there is a real risk when the federal government may decide to regulate and control cryptocurrency. Moreover, Bitcoin can at any time be recognized as illegal (although it is already banned in some countries). This will have a huge impact on the price, as well as the ratio of supply and demand..
4. You need to invest only in what you understand
Financial consultant Stephen Rishall says that one of the main reasons why he does not advise his clients to invest in bitcoin is ignorance and misunderstanding.
“If you don’t understand how it works and how you can easily get your money back, then you probably should think twice before investing,” says Rishall.
“Cryptocurrencies are very speculative and unregulated. “This is a Wild West investment where numerous cases of fraud are driven by greed and hyper-marketing,” said the consultant. This is another expert opinion on cryptocurrency.
5. Bitcoin is very volatile
While Bitcoin prices have steadily increased over the past year, the daily value of the currency has fluctuated greatly. These huge fluctuations can cause emotional reactions that will only intensify with the movement of the price. So says financial adviser Brett Romero.
Imagine if you dived into a cryptocurrency mania when the value of the currency was $ 16,000, and then watched how the values fell below $ 14,000 a few days later and lower, as it already was. You are likely to be extremely stressed, and perhaps even sell your investment to prevent further losses. In any case, volatility can easily make us say goodbye to savings and make rash investment decisions..
6. Investing in bitcoin resembles gambling
Joseph Hog, a financial advisor and investment analyst, says bitcoin is not as big a problem as the investment strategies it creates. Making money on short-term investments always turns into gambling. And when you’re used to gambling, it’s hard to invest in any other way..
“You will constantly look for the next opportunity,” says Joseph. You can earn money on several investments, but in the end you will be a loser and dig your way down, spending more and more money on bitcoins.
“True investments will not make you rich overnight, but they will meet your goals if you follow a long-term strategy,” says Hog.
7. Bitcoin is concentrated in the hands of a narrow circle of persons
The opinion of experts on cryptocurrency from the Bloomberg agency expressed concern that only 1000 people owned 40% of the bitcoin currency. They previously reported this. You can easily understand why this is a problem. Just imagine that some of these investors, often called “whales,” decided to capitalize on their earnings and sell their bitcoins together. What will happen to the currency? Most likely, Bitcoin prices will collapse. So says, at least, financial adviser Christopher Klepp. “With so many bitcoins in the hands of so few, we get the perfect situation to manipulate an entire market with the help of a small group of people,” he says.
If the owners of the cryptocurrency decided to coordinate their actions in order to protect themselves from losses, they would succeed. Bloomberg notes that bitcoin is a currency, not a security (stock), so there’s “no trade ban in which a group agrees to buy something to raise the price, and then sells it”.
8. Bitcoin may be susceptible to hacking and theft
Since bitcoin is a digital currency that is largely unregulated, it can be especially prone to hacking. And this has already been confirmed. In early December last year, for example, more than $ 60 million in bitcoin was stolen through a trading website called NiceHash.com, CNBC reports..
But Klepp says this may be just the beginning. “The upcoming wave of quantum computing, which will accelerate significantly in the next two to four years, will make most of Bitcoin’s cryptography almost useless for crime prevention,” says Christopher. In other words, things can get worse before they get better.
Instead of puzzling over how or when to invest in bitcoin, most financial advisors offer you to focus on real and tangible monetary goals. Postponing interest on retirement, paying off loans and opening reserve funds can help strengthen the financial status of more cryptocurrencies. These tried and true financial steps may not be as exciting as bitcoin, but they will pay off in the long run. This is the opinion of experts about cryptocurrency.
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What are the expert opinions on the validity and risks associated with cryptocurrency, particularly Bitcoin? Can you provide insights into the 8 mentioned reasons that support ignoring Bitcoin?