Home Business & Economy What You Need to Know Before Joining the Bitcoin Train

What You Need to Know Before Joining the Bitcoin Train

(Image: Alamy)

Got friends talking about the nice profits they’re making from bitcoin? You wanna try it too? On the surface, that wouldn’t be a very bad idea especially since the cryptocurrency has seen an amazing price boom which has turned some people into millionaires. And now, billionaires!

The Winklevoss twins, Harvard University colleagues of Facebook owner Mark Zuckerberg, are now the first known bitcoin billionaires. They sued Mark Zuckerberg for stealing the idea of Facebook back in the day at Harvard University. They got $65 million and bet $11 million on bitcoin in 2013. The $11 million has matured now to roughly $1 billion.

Before you follow your friends into the bitcoin market to also try and make some money, you need to be aware of these:

1. What Really is Bitcoin? Big Brains Still Can’t Tell

The analysts and experts are divided on bitcoin. They can’t give a clear coherent answer to what it is and what it is not, and why its price keeps going above the roof.

One of the most sound and time-tested pieces of investment advice is to thoroughly know and understand what you’re about to deal in. If you want to invest in currency trading, you should know the currencies you want to deal very well, the countries that issue them, their economies, relationship with the world economy etc. If you want to buy shares in a company, it’s sound advice also that you should know the company and its industry well. If you don’t understand the company’s financial statement, if you can’t explain it to somebody, you’re rolling on dangerous turf.

2. You Could Make Losses, Like Many Other Investments

If you want to trade bitcoin as an investment to make some more money, you should accept the one thing that plagues almost every profit-seeking endeavour: you can lose your money and make a loss. It doesn’t matter if everyone else around you is making profit now.

The price of bitcoin has just been going up like crazy so it’s pretty simple. Just buy some. Some months later, the price will be up, then you sell it. Could the bitcoin market ever change? The answer is yes. It could change after you’ve entered it and leave you with a loss.

3. Bitcoin Could be a Bubble

Quite a significant number of renowned economists, billionaires, hedge fund managers, banking and investment gurus – the people who live their lives on economics – have warned that bitcoin is a fine example of a bubble, which is an unsustainable rise in the price of an asset. Typically, bubbles take people by storm and get everyone frantically investing in it; people go to the extent of even borrowing money to buy whatever it is that is booming, so they can ride the uptrend in price and sell it after the price rises. But usually, whatever it is that is booming, can’t keep doing so forever. At a point, it will run out of buyers and the price will come tumbling down. Bitcoin could be playing out like that now. Robert J. Shiller, a Nobel prize-winning economist who has predicted some bubbles before they occurred in America, believes bitcoin’s wild rise in price is heading in that direction: it will crash and then the price will drop down.

Since 2012, the price of bitcoin has grown more than 1,000 times. And there’s no real explanation for why this has happened. That should scare any defensive investor.

4. Bitcoin’s Anonymity Could be its Undoing.

In May 2017, a large scale cyberattack rocked the world, affecting institutions and individuals on every continent. The perpetrators of the WannaCry ransomware attack which locked computers around the world, demanded their ransom in bitcoin. That’s not surprising.

The cryptocurrency allows a lot of anonymity. It does not require customers to be identified and bitcoin exchanges do not really do any real documentation of their customers and their identity. In the case of the WannaCry ransomware cyberattack, the criminals received some payments into their bitcoin wallet but nobody knows who the owner of that wallet is. They could get caught demanding their ransom to a bank account, but not a bitcoin wallet. Bitcoin’s proneness to being used for demanding ransom, laundering dirty money, financing terrorism and for other criminal activities, is quite real.

Image: Shutterstock/Brian Jackson

There have actually been instances of it happening. As it stands now, bitcoin could soon come under strict regulation soon. That could affect the price negatively, and then you could be staring at a loss.

5. Scammers are at work too

Apart from the money launderers, scammers have also been at work. They just had to be, given the mad rush.

One of bitcoin’s problems is that the cryptocurrency is not physical so if you buy it what actually shows that you’ve got some? If you’re not savvy enough, here’s where the scammers come in. Some sell fake bitcoin to unsuspecting rookies. Some trading exchanges claim to hold your bitcoin for you after you’ve bought it from them. And some bitcoin trading websites have completely shut down and disappeared with everything that customers thought they had.

Still wanna try? Sure you can, if you’ve got some money you’re prepared to lose.

LEAVE A REPLY

Please enter your comment!
Please enter your name here