The risks of bitcoin

The risks of bitcoinBitcoin is giving a lot to talk about lately. Its price has skyrocketed in recent months and many people are considering buying this currency as an investment. In this article we will analyze the risks of bitcoin, which derive from both its fiduciary nature, doubts about its future demand, its opacity, its regulatory risks and its speculative risks, with a final recommendation for those who are thinking of “investing” in it. new currency.

What are bitcoins?

Bitcoin is a decentralized electronic currency that has been running rivers of ink in the global economic press for months. This currency was created in the year 2.009 by Satoshi Nakamoto.

Unlike most currencies, bitcoin does not rely on trust in any central issuer, but instead uses a decentralized encrypted system to test its transmission.

In this graph we can see the evolution of the price of bitcoin:

Bitcoin price

Bitcoin price

Its value has gone from being worth less than 1 cent of the dollar to a price of approximately $ 140. With about 11 million bitcoins in circulation, we are talking about a total value of $ 1.500 billion of the bitcoin market, which is being said soon.

It is estimated that the supply of bitcoins will gradually increase until it stagnates near 20 million units over the next decade.

The risk of the fiduciary nature of bitcoin

Money is a medium of exchange that may or may not have real value. Today, no currency has any real value since the end of the gold standard in 1.971, which linked the value of the US dollar to gold. Money that has no real value is called fiat money.

Bitcoin is also fiat money. The problem is that the rest of the currencies have the backing of one or more states, which is what makes them have value for the people who use them and continue to trust them for the exchange of goods and services. The problem with bitcoin is that it lacks any type of support, so the lack of support can end up causing it to lose all its value.

The risk of demand for bitcoins

This risk is directly related to the fiduciary nature of bitcoin. Lacking real value, the price of bitcoin will oscillate according to variations in supply and demand, without any real reference.

If bitcoin fails to become a currency generally used in commercial transactions over the internet, this can cause a sharp drop in demand, which would once again make this currency lose its value.

The risk of opacity from the creators of bitcoin

As we have already said, bitcoin was created by Satoshi Nakamoto. Who is this character? According to Benjamin Graham's requirements to consider it an investment and not a speculation. In value investing, we seek to invest in assets that have an intrinsic value greater than their price. In the case of bitcoin, its intrinsic value is zero.

My recommendation: stay away

My recommendation is to stay away from bitcoins and see what happens from the sidelines. The risks of bitcoin are not acceptable for an intelligent investor, but rather we are facing a clear case of outright speculation.

Of course, I don't have a crystal ball, so I can't say if what I think is a bubble will end up bursting this month or this year. However, my prediction is that bitcoin is a bubble that will burst sooner or later.

Of course, I can be wrong and that in the end bitcoin is very profitable and safe for those who speculate with that new currency. I am aware that each person is free to do whatever they want with their money. However, I hope you are aware of the risks of bitcoins before making any decision that you may end up regretting.

Links of interest about bitcoin