Investing in bitcoin isn’t a decision you should make lightly or without being properly informed about all the potential risks involved.
Still, you might be tempted to invest in bitcoin after hearing about the remarkable price gains this cryptocurrency made in 2017.
Bitcoin started the year at $1,000 and in late December, it was near $20,000.
That’s a phenomenal run-up for any investment, and it’s uncertain how sustainable bitcoin’s rise will be in the future.
So if you haven’t yet bought bitcoin, but are seriously considering doing so, here are some pros and cons of investing in bitcoin.
Essentially, there are a couple reasons why you might want to invest in bitcoin – as well as several reasons not to.
2 Reasons to Invest in Bitcoin
The “pros” of investing in bitcoin really boil down to two factors:
- You might make a fast buck
- You have spare money to lose
Let’s be honest: the main reason people are investing in bitcoin is because they see an opportunity – or at least the chance – to score a quick financial gain.
In fact, some people are approaching bitcoin almost the way they do buying lottery tickets. In other words, they are putting money into bitcoin knowing that they could get a big payoff, but they could just watch their money go up in smoke as well.
It’s that latter factor you should consider if you’re contemplating a bitcoin investment. Because buying bitcoin is highly speculative, you should only put money you can afford to lose.
Don’t mortgage your house or buy bitcoin with credit card advances, as some people reportedly having been doing. That’s financially foolish.
Having said all that, is it possible to make a fast buck with bitcoin? Yes, it definitely is, especially when you know how to leverage it. Plenty of people have already done it.
But no one knows the future. Bitcoin could double or triple from its current price – or it could suffer a spectacular crash leaving scores of investors regretting the day they ever heard the word “bitcoin.”
4 Reasons to Avoid Investing in Bitcoin
The “cons” or drawbacks about investing in bitcoin boil down primarily to four things:
- Bitcoin’s volatility will continue
Bitcoin just started trading on a futures exchange, the CBOE – the Chicago Board Options Exchange – in early December. (Futures are an agreement to buy and sell a certain product at a certain date).
Now that bitcoin futures are also trading on Chicago Mercantile Exchange (as of December 18, 2017) volatility will further increase. If you can’t stomach wild price wings, perhaps you’d be better of saying “no” to investing in bitcoin.
- Bitcoin is unregulated
The Securities and Exchange Commission (SEC) declined to approve a Bitcoin exchange-traded fund (ETF) application in 2017. So bitcoin itself is still unregulated. Never forget that fact, and don’t mistakenly think bitcoin is regulated because of bitcoin futures being on established exchanges.
Regulators like the Commodities Futures and Trade Commission oversee futures exchanges and let investors speculate on the future price of bitcoin, but that’s very different from regulating bitcoin itself.
- Bitcoin is in its infancy
Bitcoin has only been around since 2009. That makes it a very new investment, one it is infancy, relative to say, other asset classes that have been around for decades or even more than a century.
Because bitcoin is so new, some observers say it may not last.
The thinking among bitcoin detractors is that even if blockchain technology continues to grow in popularity – as most people say will happen – that does not guarantee bitcoin’s survival. Other competing crypto-currencies may drive down demand for bitcoin or even potentially make bitcoin a short-lived fad.
- You’re an investing novice
The final reason you should think long and hard about purchasing bitcoin is if you’re an investing newbie.
As a financial novice, if you don’t even know the basics of investing, it could be ill advised to jump into something so speculative as a starting point.
You might be better off sticking to plain vanilla stocks, bonds and mutual funds as a way to walk before you run.