Bitcoin has sparked a hope since it appearance on the financial scene. It appears to be some sort of magic investment, where one could invest and all sorrows are gone. Most of these hopes happens to be false. Today, we would be sharing with you, seven reason why you should not invest in bitcoin.
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1. High Volatility
Cryptocurrency investments are very high risk investments. This is majorly due to the high volatility of the price of cryptocurrencies. Experts are very skeptical about the decision to invest in cryptocurrencies because there are no data to analyze. A PwC Partner says: “There is not enough of an ecosystem surrounding bitcoins to allow fundamental analysts to study it as an investment. People are therefore investing with imperfect information and joining the herd of speculators.” The prices are not regulated and we have more people entering into this market, being lured by the high prices which continue to even climb higher. This may lead to a bubble which may burst and cause great losses across.
2. Not Recognized as a Currency or Commodity
There is not much clarity about the origin of bitcoin and this poses to be a big issue. In the past, highly priced metals where used as currencies. Presently, currencies are printed by governments (fiat currencies). Cryptocurrencies have been claimed to be mined using complex mathematical formulae. However, they have not been classified as a commodity. They also are not being controlled or regulated by the government. As a result, it is very risky. S.P. Sharma (Chamber of Commerce and Industry) says: “It can be very risky for businesses, industry and people to trade or invest in bitcoins as it is just a formula, not backed by any tangible asset, but by sheer demand,”
3. Do not invest if you do not understand
The first thing to acquire before any investment is understanding how the business works. Financial experts have warned that cryptocurrencies are nothing but a bubble. There isn’t a solid foundation which can be studied. The problem is apparent: If global bankers do not understand the phenomenon, small scale investors might not have much of a chance either. So what should you do? If you don’t understand it, don’t invest in it (Warren Buffet).
4. Legality
Cryptocurrencies may not have been declared as illegal. However, they also are not recognized as a legal ‘currency’ in places like India. In December 2013, the Reserve Bank of India issued a press release cautioning users, holders and traders of virtual currencies, including bitcoins, about the potential financial, operational, legal, customer protection and security related risks. On the 1st of February, 2017, the regulator has further stated that it has not issued licences to companies for trading in any virtual or digital currencies. They also added, that the user, holder, investor, trader, etc. dealing with virtual or digital currencies will be doing so at their own risk.
5. Fraud
There is also a high risk of fraud associated with cryptocurrencies. Fraudsters have taken advantage of the unavailability of adequate information about bitcoins to defraud the unsuspecting public . Some companies claim to double the initial investment within a very short period of time. “The growing use of virtual currencies in the global marketplace makes it easy for miscreants to lure investors into Ponzi schemes. Investors have been advised to steer clear of such unrealistic investments. They should keep in mind the high volatility of the bitcoin and understand that there isn’t any form of guarantee for returns.
6. Prone to illegal activity
The lack of government control has granted terrorists and extortionists access to utilize the cryptocurrency space to their advantage. Cybercriminals have found ways to mask the addresses of relatively anonymous bitcoin users. It can be difficult for government authorities and companies to trace such illegal activities, says the MD and Head of South Asia, Krollsays. A 50 year old user fell victim to such hacking in September 2016. His computer was remotely accessed and locked by hackers, who demanded a payment of three bitcoins.
