There is a lot of hype and a lot of excitement surrounding Bitcoin, as well as other cryptocurrencies. Whether it is warranted or not, will be a topic of conversation for a long time to come. However, if you can’t afford to lose the entirety of whatever investment amount you might be considering, here are four reasons to steer completely clear:
- There is no recourse or assistance for loss. If someone steals your credit card information, for example, you have legal and financial recourse through the issuing bank, consumer rights agencies, and more. Monies can be credited to your account and law enforcement can be sent after the perpetrators. However, if your Bitcoin is lost or stolen, there is no agency or responsible party, to provide assistance of any kind.
- There is a hard limit on the number of transactions the system can process. Bitcoin’s blockchain protocol requires that every node in the network download a copy of every Bitcoin transaction that has ever occurred, which makes it more and more resource intensive. As its popularity has grown, Bitcoin protocol has limited the size of each block to one megabyte. A “block” is created every 10 minutes on average, which creates a “hard limit” to the number of transactions the network can process. This will be a serious limitation in the future.
- There is a lack of Applications. The transaction limits addressed above will prevent Bitcoin from ever being a replacement for credit cards, just as an example, due to its inability to function at such high transaction levels. Other than the novelty of the investment, it’s hard to justify current valuations and even harder to think the same type of growth opportunity exists for new arrivals. Obviously, its greatest popularity and usage will be with larger and more dubious transactions.
- Growing global regulations. Australia has now joined China and Japan with government efforts to regulate digital currency exchanges, in order to “prevent money laundering and terrorism financing.” The Trump administration has a full plate, but is sure to board the bandwagon in some capacity before too long. This is another long term inhibitor to its rocket-like growth.
In summary, individual and investor support appears to be strong, but there are few economic
fundamentals to support a belief that such value-growth can continue. Bitcoin is up in value more
than 350% year to date and more than 650% from the same time last year. Involvement and
popularity may take time to wane, but the rapid growth and profitability of the past are past and
the future looks to be a far more difficult road to hoe, both legally and financially.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.