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How safe is Bitcoin as an investment? The 3 Biggest RISKS

2 min read
Bitcoin is considered as a unsafe investment for retail investors due to the volatility as well as longer bear cycles than bull cycles.

How safe is Bitcoin as an investment?

Bitcoin is considered as a unsafe investment for retail investors due to the volatility as well as longer bear cycles than bull cycles.

Bitcoin is the first successful use case of Blockchain technology.

It is the first generation of cryptocurrency technology and as like all new “systems”, it has some major flaws. These flaws are specifically what makes Bitcoin an extremely high risk investment.

 

How safe is Bitcoin as an investment?

Bitcoin is extremely unsafe and very high risks for those who do not understand what it is or how it works.

However, those who master its fundamentals (how it works) and market cycles (when to buy and when to sell) consider Bitcoin as a safe investment.

 

Bitcoin is speculative and not backed by anything

Bitcoin’s prices are calculated based on demand and supply.

The more investors get in, the higher the prices go.

The less buyers there are, the least likely the prices will go up.

Therefore for Bitcoin to go back up, it needs more buyers to fuel prices.

The caveat is that investors need hype to get in,

However, this is usually too late because the investors who bought at the bottom cash out resulting in prices crashing 50% overnight because prices are based on demand and supply without control.

Those who usually get in at the bottom  are usually institutions, professional traders and experienced investors.

 

50% overnight price crash

Bitcoin is considered high risk compared to other investments because if someone buys at the top, they could potentially lose 50% overnight and it could take years before they break even.

Microstrategy has been buying famously Bitcoin since 2021 and was not in profit until October 2023.

 

Bans

While various countries are creating frameworks to regulate cryptocurrencies.

Some countries are banning them.

This can potentially make it difficult to cash out if the investor has not been following the news closely.

 

How did Bitcoin prices go from a few cents to $69,000?

Bitcoin has a limited supply of 21million Bitcoin.

This means that only 21 million Bitcoins can ever be mined.

Also, every 4 years the number of Bitcoin which can be created by miners gets halved.

This is the complete opposite of traditional government controlled currencies who print money as soon as they exceed their budgets.

Interestingly enough, the Bitcoin halvings are bullruns happen the same year as the US presidential elections.

During the Covid-19 pandemic, many large companies invested in Bitcoin as a hedge against inflation.

 

Why do Bitcoin prices crash?

Bitcoin is a relatively new market and small market compared to other markets.

And obviously not as big as the USD , EURO, Pounds Sterling or Gold.

As soon as there is a major sell off by a group of whales, prices drop.

The news may also also affect prices like most traditional investments.

 

Can Bitcoin ever go to zero?

Over half of the first bitcoins mined by early miners have been lost.

Those who have bought Bitcoin in its early days are in profit and are unlikely to sell off.

And this creates a price cushion.

Bitcoin has also been compared to the Tulip bubble where one tulip bulb was worth an villa.

According to worldpopulationreview.com there are 47 million millionaires world wide as of 2023.

What would happen to Bitcoin prices if each one of them owned half a Bitcoin.

 

How to decrease the risks

The best way to decrease the risk and increase ROIs is learning fundamental and technical analysis (basic trading skills) to better understand what is happening in the market.

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