Recently, Bitcoin (and many other altcoins) have been skyrocketing in price. Billions of dollars are being poured into the cryptocurrency world lately, but is it with the right intention?
Bitcoin as an Investment
So with Bitcoin and others steeply rising, now’s a better time than ever, right? Well… maybe, but there’s a few things to be weary of first.
In general, cryptomarkets are extremely volatile. Take a quick look at CoinMarketCap‘s worst performers of the week – some losing up to 99% of their market caps in a few days. Now, these coins are often not as credible as Bitcoin, but it begins to exemplify how risky they can be. Back in 2013 Bitcoin dropped 50% overnight, due to a single Chinese exchange. There’s no guarantee that this won’t happen in the future, despite current optimism. Government and regulator reactions are hard to judge, and one unforeseen piece of legislation could send Bitcoin into a downward spiral.
The Nature of Bitcoin
Satoshi Nakamoto‘s original vision of Bitcoin was a system to reinvent and replace currency as we know it. From his whitepaper, it seems like there was no intention for Bitcoin to be treated as a savings bond, stock, or investment of any type. It’s sole purpose was to buy and sell goods, replacing physical cash with the click of a button.
Bitcoin was built to be spent and circulated. We wouldn’t shove $100 under a mattress, expecting it to be worth more in a year, but this is a possibility with Bitcoin. The issue arises when the price has to stabilize. This allows vendors to accept Bitcoin directly by understanding it’s value. Stabilization may not come easily, though. Currently, Bitcoin’s graph looks exponential, which isn’t likely to just level out. We should expect some lows, whenever they occur. And when they do, hopefully the exchanges can handle it.
Hope: The Greatest Bitcoin Driving Force
While browsing popular Bitcoin forums or subreddits, you can find them speckled with the tales of Bitcoin-made millionaires. These are typically followed up with a series of hopeful comments, excited that they may be next. This is a definite possibility for the early adopters, but can begin to take the shape of a Ponzi scheme, leaving the last to enter (or sell in this case) with nothing left. Just this month $20 billion has been funneled into Bitcoin alone, a rate that I can’t see continuing indefinitely.
None of this is to say that you shouldn’t invest in Bitcoin or other cryptocurrencies, but just be careful of the risks and lack of regulation. As excited as I am to see the recent price surges, I’m just as weary. I still think Bitcoin has a long way to go before there’s anything to be too concerned about!