If you are in any way interested in finances then you have likely asked yourself the following question at some point over the last five years “Should I invest in Bitcoin?”. The cryptocurrency launched in 2009 but in 2017 and 2018 went through incredible increases in value. At one point in late 2017, a single bitcoin was worth $20,000. It fell drastically to around $3,000 in 2019 and has since largely increased and appears to be steady around $10,000 today. With the currency steadying and the value now in the mid-range of its historic value, many are asking that question again, so should we invest in bitcoin?
There is an old saying that if you are asking the question that in many ways already gives you the answer. If you don’t enough about bitcoin and are therefore unsure of whether to invest, the answer is clear, you shouldn’t. Bitcoin rose so high in value in 2017 due to speculation on price. People bought large amounts of bitcoin not because they saw that it had a high intrinsic value but because they believed it would be worth more tomorrow and that they could sell it for a higher price. There is a fallacy in this logic.
Bitcoin was designed to be a highly secure currency that would be impossible to hack, impossible to steal, was inflation-proof and decentralized ownership of the currency, and the tracking of the currency. On paper, in theory, it was and is fantastic. Yet many of the claims about bitcoin while true in theory were not true in reality. The price of bitcoin has fluctuated widely and although there is a finite amount of bitcoin which in theory makes it inflation-proof, the opposite has happened thus far. Bitcoin was designed to mimic gold. The idea is that when currencies are unreliable people invest in gold. It is a scare resource and therefore a good store of value. No one can create more gold by simply wanting to, therefore changing your money into gold in tough economic times is a good store of value. Bitcoin was designed to be the same, the idea being that the supply of bitcoin ran out the value of it would slowly increase over time eventually falling to zero. This may still be true in the very long term but in the medium term, we have seen that bitcoin prices have been incredibly volatile.
It is not secure either. Bitcoin is deployed using blockchain technology. Blockchain is a very secure technology as instead of saving all your money on a central server it saves it in every server on the system. In theory, this means that it can’t be hacked as they would have to hack every bitcoin user’s computer or system. This was thought to be impossible but already people have proven there are ways to do that. Any intelligent system can be used against itself it seems. Not only this but many people simply lose their bitcoin codes and then lose their money, a risky purchase in many ways.
Therefore bitcoin is far from the savior it was suggested to be. If it was so good it would be a currency that was slowly replacing the currencies in existence. However, no one is purchasing bitcoin to replace existing currency, they are purchasing it to sell it for the existing currency at a future date. This is the inherent fallacy of the currency at present and a reason that you should stay away. In the long term, bitcoin may start to perform as it was originally intended to, or perhaps a different cryptocurrency will. Until that point, you should steer clear.