This year, the crypto currency, bitcoin, also called "digital gold," has risen more than 1000%, but experts advise to stay away from this "gold". Why is that?
According to Google Trends statistics, the search query "bitcoin" this week surpassed the popularity of queries related to the Kardashian family. The Crypto currency has become the object of close attention of people from all over the world.
Bitcoin appeared in 2009. It is a decentralized payment system that operates only on the Internet. The most important feature of bitcoins is their decentralization, that is, unlike other currencies, they are not controlled by any bank or state.
The bitcoins have as adepts who call them "the currency of the future", as well as opponents who predict that soon this crypto currency will burst like a soap bubble.
Among the advantages of bitcoins are anonymity, impossibility of fraud on the part of the buyer and freedom from excessive control and pressure. Still, many financial experts warn of serious risks associated with investing in this crypto currency. Why is that?
1. Instability (volatility)
The price of bitcoins is extremely unstable, and no one can predict its growth or decline. For example, on November 29, 2017, the exchange rate of the crypto currency exceeded the $ 11,000 mark, but then fell sharply to 9,000.
James Hughes, senior analyst at brokerage company AxiTrader commented this:
"As many experienced traders know too well, everything that is growing rapidly tends to fall even faster when the time comes, and this time will come"
It should be noted, however, that, according to some experts, high volatility of bitcoin poses a threat only for short-term operations, and does not affect long-term investment.
2. Anonymity
One of the reasons for the popularity of bitcoin is its anonymity. At the same time, the opportunity to remain unrecognized and uncontrollable by the authorities makes this crypto currency attractive to all kinds of scammers, because it is almost impossible to track who the money has gone to. The lack of information about the person with whom you make a deal, puts investors at risk of becoming a party to the money laundering process or a victim of terrorists.
For example, in 2016, hackers blocked the computer of a 50-year-old Japanese and demanded for a release of a ransom of 3 bitcoins. The ransom was paid to extortionists, but they did not unblock the computer. It was not possible to find the criminals and return the bitcoins.
In May 2017, the crypto currency was at the center of worldwide attention, after thousands of computers were blocked by a virus called WannaCry. For unlocking hackers demanded a ransom exclusively in bitcoins.
It is also possible that bitcoins can be used by terrorists to finance their activities. In this case, the crypto currency can be banned at the legislative level by many states. This will lead to a sharp drop in the price of bitcoin.
3. Absence of a material basis
"For business, industry and individuals, it can be very risky to invest in bitcoins, because it's just a formula that is not backed by any tangible asset, but by exceptionally high demand"
S.P. Sharma
Unlike money, bitcoin has no material foundation, so, according to experts, it can not become a full-fledged means of payment. If currencies have a material base rate, which depends on the policy of the state and the decisions of the central bank, the growth and fall of bitcoins is not regulated by anything and depends only on the balance of supply and demand.
Bitcoins can not be called money, since they do not possess two of the basic properties of money, which are the ability to measure the value of goods and the ability to preserve their value.
Imagine a situation: two firms conclude a transaction for the supply of goods from one country to another and agree on payment for the goods by bitcoins. The goods go to their destination for several weeks. Let's say that during this time the price of bitcoin is doubled. What will partner firms do in this case?
4. There are no safe ways to invest in Bitcoin
As already mentioned, with anonymous investment you can become a victim of scammers and lose all investments. In addition, it should be remembered that all bitcoin-transactions are irreversible, i.e. cancellation of remittances is impossible, even if you made a mistake.
5. No one knows exactly what it is
Recently, the director of the American financial holding JP Morgan, Jamie Daymon, called the bitcoins a pacifier and compared them with the tulip fever of 1630, which became the first blasted stock market bubble in history. To this, the chief operating officer of Bitcoin-exchanger Zebpay Sandip Goenka objected that Dimon, perhaps, simply does not understand the evolution of the bitcoins.
So think: if the director of the largest financial holding company does not understand, how can an ordinary citizen understand this? And as the famous American investor Warren Buffett said:
"Do not understand, do not invest"
Insecurity
The status of bitcoins and other crypto-currencies is not regulated by law. Thus, all investing in "digital gold" is quite risky. The well-known Indian economist S.P. Sharma said this as follows:
"If we buy something with a credit card and the deal breaks, we can call the bank and ask for a refund. But if you are deceived when dealing with Bitcoin, you will not be able to return the funds "