Bitcoin: High Returns, Higher Risks

According to their website. Bitcoin is “an innovative payment network” and “a new kind of money.” The website promises that this new currency option offers “exciting uses” that “could not be covered by any previous pay system.”

So what does that mean? Essentially, it’s advertisement. Like any other product being sold, Bitcoin does their best to spread that what they are selling is better than traditional currency. The ads offer opportunity and convenience, two things prized by consumers. But what are these exciting new opportunities that are being offered so vaguely? The website promises quick “peer-to-peer” transactions, worldwide payments, and low processing fees. That sounds fairly compelling, and fairly simple, right?

Bitcoin is, out of 400 odd digital currencies, the most commonly known and used digital currency. Since Bitcoin is independent of any government or central bank, it is considered advantageous to small businesses who are disinterested in paying a processing fee to the card company each time a card is swiped. This currency might prove especially useful to developing worlds, where people have cellphones but not access to a bank account. Bitcoin is also, to some extent, anonymous. Those who are concerned about tax information or their right to privacy may prefer this currency, and right now the bitcoin is worth some $680 dollars.

All of these benefits being said, Bitcoin does have some drawbacks. Serious drawbacks, at that. The largest drawbacks can be attributed to government policy regarding bitcoin trade, risk of theft, speculation as a tool, and volatile values.

Firstly, the government to not treat bitcoins like “actual currency.” The IRS considers bitcoins to be more similar to stocks and bonds than currency, and so the trade of bitcoins can be considered a taxable event by the government. Basically, if the bitcoins increase in value while in your possession, you may owe the government money. A capital gains tax is paid when value increases from the time an asset was purchased. This usually applies to stocks, bonds, precious metals, and property. This is not a concern you face when you pay with normal currency. Clearly.

Second, and more concerning, is the threat of theft. Since Bitcoin is conducted over the internet, there is a risk of users being hacked and stolen from. Since Bitcoin is, to an extent, anonymous, it’s impossible to return the stolen bitcoins once they are gone. In 2014, Mt. Gox in Tokyo, Japan, the largest trader of Bitcoin at that time, was hacked. The overall loss was 850,000 bitcoins, the value of which exceeded $470 million. Though $116 million in bitcoins was recovered, the financial loss was overwhelming.

Bitcoin is risky as an investment, and for more than the risk of theft. Speculation is defined as investment made in stocks, or other ventures in the hope of increasing profit, but with the (serious) risk of decrease in profit. Essentially, it is a guess. An educated guess, in some situations, but a guess nonetheless. No speculation can be made with the concrete promise, regardless of keen intuition. Pair the originally rickety (though necessary) practice of speculation in the money-making world with the volatile nature of bitcoin value, and there is a recipe for potential financial disaster.

Volatility, for a currency, is the the change in worth that varies from day to day, hour to hour depending on a complicated web of variables. Bitcoin fluctuates in value with a notoriety to eclipse most if not all printed currencies. Their current worth is an estimated $600 per bitcoin, but that is easily subject to change.

Since Bitcoin is not regulated by a bank or government, it’s hardly surprising that the value fluctuates. On November 27, 2013 the Bitcoin was worth a whooping $1000. By February of 2014, the worth had dropped to roughly half that. By January of 2015, the worth was down to $320 dollars. That is a substantial financial loss for anyone invested in Bitcoin. Since the crash of the market in 2014, the value of Bitcoin has yet to break $750. Though this is leaps and bounds from it’s January 2013 worth of a grand $13, it’s no $1000.

Ultimately, Bitcoin has proven in the past to be a risky investment. Though worth has stayed relatively stable in the past year, there is no telling what the future will bring. With the risk of loss comes the chance of gain, yes, but so to comes the risk of loss. If you have money to spare, that will not make or break you, by all means. See about investing in Bitcoin. Professional advice is, simply put, don’t invest your life savings on speculation in regards to Bitcoin, given past data. It is volatile.

Of course, do not rely on these statements. This article, while researched and carefully considered, should not make your decision for you. Though it can be difficult to decipher the codes of investment, you may find it is worth your time. Bitcoin does put $575 million or so new coins into circulation each year, so that suggests a demand. Prices have been ultimately steady in 2016. Who knows what the future of this digital currency could bring? Only time will tell whether or not bitcoins will remain or increase as a digital currency.