What they don’t tell you before investing in Bitcoin

All that glitters in the world of cryptocurrencies and bitcoin is not gold and for every success story there are 10 losses that have not reached your ears (or that your crypto-investor friends do not tell you about).

Without going any further, between December 2021 and January 2022 Bitcoin lost 75% of the value accumulated in the entire previous year. This volatility is one of the characteristics of cryptocurrencies that not everyone tells you about and one of the dangers of investing in cryptocurrencies that you should keep in mind.

Surely you have read a lot of news about the potential of bitcoin and what it can be worth. There are those who speak of more than 100,000 dollars per virtual currency, a very appetizing sweet, but also very dangerous. Before launching into the adventure, there are three things that you are not told about bitcoin that you should know.

Tomorrow a bitcoin might be worth nothing

The first of the  dangers of investing in bitcoin has to do with the risks you take. A bitcoin is worth 35,000 euros today and reached a value of more than 60,000 euros, but tomorrow it could be worth 0 and it would not even be the first time in history that something like this has happened.

Bubbles and investment trends are not new. They have been going on for a lifetime.

The first bubble of this type dates from the 17th century when a single tulip could buy a house. In just one day, they went from paying 90,000 florins for 99 tulips to not selling half a kilo of these plants for 1,250 florins, a loss of 72 times their value in just 24 hours.

In between, thousands of people who lost all their savings. The reason is that the tulips had ceased to be plants to become a tool for speculation. The same has happened with bitcoin, whose technological value or as a currency has been in the background and today is fertile ground for speculation. At the present time, speculating in bitcoins is fine for a trader, but not for a saver. If you want to see your savings grow, there are other places to invest your money.

If you are still not sure,  think of bitcoin as one of many speculative fads,  one more bubble.

The one with the tulips is the first, but there have been many more similar ones. These are some  examples of speculative bubbles  that illustrate the risks of investing in bitcoin.

• The bubble of the South Seas: it dates from the 17th century and its protagonist is the South Sea Company, which had a monopoly for England on trade with the Spanish colonies. The company spread rumors about its expeditions that grew its shares from £128 to £1,000 in just 7 months. Demand skyrocketed and the company itself even made loans to small savers to sustain this share-buying frenzy. As happened with the real estate crisis, the problem came when it was time to repay these loans. The solution for many was to sell those shares, which caused their price to plummet.
• The dotcom bubble. This crisis has many similarities with investing in bitcoin. In fact, many of the dangers of cryptocurrencies are similar. This crisis began in the 1990s and broke out at the beginning of 2001. During that period, Internet companies became the savers’ darling. The expectations that the network would concentrate the new economy caused the valuations of these companies to reach unsustainable prices. In this sense, it happened as it happens today with bitcoin. Companies without real assets behind that were worth thousands of dollars and that when it was time to see what was really behind it, their price plummeted.
• The housing bubble. There have been many real estate bubbles, starting with the one experienced in Japan between 1985 and 1989. In Spain, the one experienced in 2008 has served to undo the myth that “the price of housing always goes up.” It’s a great example of how something can be worth a lot today and little tomorrow.

To these we must add less severe bubbles such as the one that is experienced cyclically with gold or oil. And it is that, from time to time, products or companies emerge that become fashionable. Its price skyrockets for no apparent real reason and then flattens out.

It’s very volatile

In the case of  bitcoin speculation,  an additional risk is added: its high volatility. It is a bet that can fall 30% in less than a week without problems.

This is one of the biggest risks of cryptocurrencies and bitcoin. Its value changes very quickly and abruptly.

The average daily volatility of Bitcoin is 6.5%. That is, in one day its value can go up or down that percentage. And that’s only on average! According to a study, the volatility of Bitcoin is four times higher than that of the stock market.

This volatility is an opportunity and at the same time one of the dangers of investing in cryptocurrencies: it is a bet that can fall 30% in less than a week without problems.

If you’re not constantly keeping an eye on the market, you can watch your savings evaporate in a matter of minutes.

Here you can see what its evolution has been (rise and collapse included, in recent years.

⚠️ The value of your investment can fall 70% or rise more than 70% very quickly.

To invest in cryptocurrencies you must be willing to take on that volatility without losing sleep. Do you really see yourself capable?

There is an information bubble about bitcoin

Another one that they don’t tell you about bitcoin is also another bubble around bitcoin: the information bubble and we all know how all bubbles end: exploding. Again, this is not the first time this has happened: do you remember the famous Tibetan Goji berries? They went from being a panacea for your health to being toxic and their trail was lost in the media after accumulating dozens of daily news.

The same thing happened with the Panga in 2017. It was first exalted as the solution to consume fish and then elevated to the category of food demon.

Here you can see the information bubble around the Panga in a single graph with the search volume over time:

Does the same happen with bitcoin and cryptocurrencies? Is there a bubble with cryptocurrencies? This is their search volume, you can look at it and judge for In the investment field, experienced an episode that serves as an example: Terra. The company was one of the protagonists of the dot.com bubble in our country. There was a time when you had to have “terras” yes or yes. It was a safe investment, a train that could not be missed. Then came the crash and an example of how our brain can play tricks on us when investing.

Will the same happen with bitcoin and cryptocurrencies? I’m not a fortune teller, so I don’t know, but I do believe that one of the risks of investing in cryptocurrencies now is that information bubble that we live in.

With so much data it is difficult to analyze the situation well and very easy to fall into the cognitive bias of loss aversion and FOMO.

👉 Fomo or Fear Of Missing Out is the fear of missing out on something, whether it’s a great investment opportunity or a specific reduction in the price of a product. In fact, it is one of the tricks of the sales stores that works best for them.

Bitcoin is not regulated

There is a key issue that has to do with security. Is it safe to invest in Bitcoin? And in any cryptocurrency ? Well, up to a certain point.

The truth is that bitcoin is not regulated by the National Securities Market Commission (CNMV) or by other bodies.

In fact, throughout the history of this cryptocurrency there have been cases of theft and loss of bitcoin in different exchanges or bitcoin exchange houses that have left their users without their coins. The most notorious case was that of Mt Gox, which sank in 2014 and lost 850,000 bitcoins from its users.

In recent months, Coinbase and Crypto.com have suffered similar attacks (and have paid their users back). Investing in cryptocurrencies is as safe as the platform where you operate and your own security system.

You can lose everything, even if Bitcoin goes up

Either because your Bitcoins are stolen, as you just saw, or because you lose them yourself. If you are obsessed with the security of your cryptocurrencies, there is no safer way than to store them in a cold wallet (a kind of USB) that is not connected to the internet.

The only problem? That you lose the device and do not remember the private keys of your crypto assets. Do you think it can’t happen? As explained by BusinessInsider, investors have lost around 115,000 million euros in Bitcoin for forgetting passwords or having their accounts blocked.

There’s even an episode of The Big Bang Theory about it:

And the same goes for the transactions you make in cryptocurrencies: you will not be able to undo them.

Yes, you will also pay tax

Cryptocurrencies have been in the focus of the Treasury for two years and their investors too. The Treasury monitors transactions and operations with cryptocurrencies so you don’t forget to check out.

In other words, you will have to pay taxes on the income statement for the profits you make and also report the bitcoins you have abroad.

Conclusion

Is bitcoin a good investment? Of course there are those who have made their fortune with cryptocurrencies and also those who have lost it.

Investing in cryptocurrencies is a high-risk investment, closer to speculation than real investing. Are you willing to see how your savings drop 20% from one day to the next? If this is not the case and you are looking for adequate profitability but also peace of mind, there are other options to achieve this that will surely suit you better.