Right now no one seems to know what to do with bitcoin. The sensational jump in value that we saw late in 2017 is now behind us, and bitcoin has regressed to a more reasonable price (though is still worth about $8,000 more than it was a year ago). The shift has left many people divided between two camps: that which believes bitcoin has proven to be too risky to be a sound investment, and that which sees another boom coming in the near future.
Here we’ll explore the factors supporting the first camp, and specifically what some of the risks with bitcoin investment might be.
The Nasdaq website actually did a fantastic write-up about some of the issues that are still facing bitcoin and its investors. And the part of the article aimed at regulatory risk called this probably the biggest risk to the future success of bitcoin, both as a currency and an investment class. Up until 2017 (and through much of that year), bitcoin was largely unregulated in major economies around the world, with only a few exceptions. Part of the bitcoin crash, however, appears to have been a result of some stricter regulations being discussed and/or implemented in East Asia. It shows that if and when larger countries and more influential economies do crack down on cryptocurrency, the market will likely suffer.
Major Hacking Events
This is another point that was brought up in the Nasdaq article, and it might be the thing bitcoin newcomers worry about most. Despite the fact that the whole point of this currency is to be encrypted, traceable, and decentralized, hacks have occurred, and will likely continue to do so. The issue isn’t so much that the entire bitcoin network or the blockchain can be corrupted (though this has happened before). Rather it’s that individual exchanges or companies can be vulnerable to hacks.
“Dotcom Bubble” Similarities
This is a phrase we’re hearing more and more in connection to bitcoin, connecting its rise (and potential fall) to the period of early speculation in internet companies in the late-‘90s. It was written about with regard to bitcoin at an Ireland-based gaming site seeking to inform players who might prefer to buy into games via cryptocurrency. There, the meaning behind the comparison was put into simple terms: quick and lucky investors come away with huge financial gains, but the markets could collapse at any time. Making your bitcoin essentially worth it. Stepping back a bit, it basically means that early enthusiasm for bitcoin may yet prove to have boosted its price beyond a sustainable point.
Rise Of Altcoins
Through 2017 and even up until now bitcoin looks unassailable atop the cryptocurrency food chain. However, altcoins have gained legitimacy as well, and when you consider that most of them were designed to mimic but improve upon bitcoin, it stands to reason that some of them could continue to gain ground. Case in point, it’s been written recently that 2018 could be ethereum’s year just as 2017 was bitcoin’s. It’s certainly not a guarantee, but because ethereum was designed for innovation rather than one specific purpose, many believe it may actually have more long-term growth potential. And if altcoins gain a lot of strength, it could conceivably hurt bitcoin.