The risks that investors should know: potential uncertainties about Bitcoin despite impressive growth
The risks that investors should know: potential uncertainties about Bitcoin despite impressive growth
The risks that Bitcoin investors should know
Despite the latest excitement about Bitcoin's performance, it is of crucial importance for investors to know the potential risks that could dampen their expectations. An urgent concern is that other large countries may follow the footsteps of China and prohibit their citizens owning, mining or trading with cryptocurrencies, including Bitcoin. China's decision last year to ban Bitcoin has triggered considerable uncertainty about the future of cryptocurrency.
However, it is important to recognize that Bitcoin operates in a global and decentralized network. So if a country like China bits Bitcoin, Miner has freedom to draw to countries in which it is still legal. Bitcoin's hash rate, a measure of the energy that ensures the network, has even experienced a significant increase since the China ban, which indicates the resistance of Bitcoin.There are also positive signals from prominent personalities such as Gary Gensler, chairman of the Securities and Exchange Commission (Sec), and Jerome Powell, chairman of the Federal Reserve. Both have publicly stated that there are currently no direct plans to ban Bitcoin in Germany. This gives investors a certain relief. However, it is important to consider that this attitude could change in the future for various reasons.
The likelihood of a domestic ban from Bitcoin seems to decrease due to the growing interest of institutional investors to Bitcoin-oriented products for their customers. Even wealthy Americans, including political donors, consider Bitcoin allocations in their portfolios. This increasing acceptance makes it difficult for the regulatory authorities to enforce a ban. A prohibition of Bitcoin within the US limits could be a risk because it would suppress innovations and possibly hinder technological progress.
The regulation of cryptocurrencies increases, as the recent complaints of the Sec against Coinbase and Binance show due to insufficient registration of their stock exchanges. The crypto industry could face stricter reality if the governments develop clearer rules to protect consumers. So far, cryptocurrencies have acted in a regulatory gray area.
Although there are real applications for Bitcoin, such as inexpensive and immediate transfers, Bitcoin's ultimate goal, according to many supporters, is the use as a medication. However, it is expected that it could still take decades for this goal to be achieved. In the meantime, Bitcoin remains a value preservation means and a way to diversify your own portfolio. Some investors see Bitcoin as a digital version of gold. Others keep a small part of Bitcoin as speculative undertaking, hoping for considerable increases in value over time.
The current market capitalization of Bitcoin of $ 600 billion is only 0.01 % of the estimated global assets. Even if Bitcoin made a modest proportion of 1 % of the worldwide wealth, there would still be considerable space for expansion.
However, it cannot be guaranteed that individuals and institutions will accept Bitcoin as expected. Skepticism, perceived risks or the emergence of a convincing alternative digital wealth value could slow down the introduction of Bitcoin.
Bitcoin may have experienced impressive growth in 2023, but investors must be aware of the potential downward factors. It is important to know the risks and uncertainties connected to Bitcoin before investing in this cryptocurrency.