Why Investing In Bitcoin Is A Bad Idea In 2021

I usually have my investment plans set towards the end of the final quarter of the year. In this case, 2020. So this time, I decided to look at Bitcoin one more time to determine if it’s a good investment for 2021 and if my position has changed from the last time I reviewed it. 

About a decade ago, I recalled laughing at a few friends who told me they had investments portfolio in cryptocurrency, Bitcoin to be precise. Bitcoin is a virtual currency secured through various cryptographic and computer-generated codes. 

I did mention to my friends back then that this thing will blow away like those before it, and I had my reasons. 

However, these days, one might feel left behind for not participating in the Bitcoin investment storm because crypto is everywhere now. You want to know if you should invest. I have listed some of the reasons why I feel Bitcoin is not a good investment for 2021.

Bitcoin Is A Very Volatile Investment

Probably my most important reason for staying out of the crypto investment bandwagon. Bitcoin goes through highly incredible spikes and plummets in value. I will share a little history.

Barely one year after launch in 2010, the value of one Bitcoin was 8 cents. From that point, the prices started jumping all over the place until they hit $1,000 in early 2017.

That same year in October, it hit $5,000 then doubled to $10,000 in November. By the end of the year, the same crypto was valued at nearly $20,000. However, there was a burst a year after, around November, when the value of Bitcoin dropped to about $3,500.

The value of Bitcoin started skyrocketing again in 2020. The digital currency cap hit $34,000 in the early morning of 3rd January.  

Note that Bitcoin has doubled in value since November 2019 and was up 200% since mid-October, and has risen 363% over 12 month period.

Bitcoin’s implied market cap of $628.2 billion and accounts for nearly 73% of the $866.3 billion in value tied up in a little over 8,000 digital tokens.

My question is, why is Bitcoin rallying?

Unlike other investment schemes where you can find news or technical analysis responsible for a bullish or bearish move, the case is not the same with Bitcoin.

Search the news, social media, or comments from analysts, and you will get loads of reasons responsible for Bitcoin’s recent rally. Some of these include the digital currency’s competitive edge, community consensus, and game-changing potential to transform payment processing.

Here are the issues with that argument. I don’t buy that excuse. Bitcoin is not unique in any way, save for being one of the preferred investment mediums on cryptocurrency exchanges. 

In other words, if investors want to buy a less-popular token, they’ll usually need to exchange their fiat currency for bitcoin first before making their purchase. That is the only actual utility that bitcoin serves.

The Shortage Idea Comes Out Of Nowhere

A bitcoin being shown on top of a tablet showing financial data. Bitcoin's shortage is more of an assumption than a theory of supply and demand.

Bitcoin bulls regularly highlight its supposed hard cap of 21 million tokens as evidence of its shortage. That assumption comes from the simple economic theory of demand and supply, which says that if demand for a good exceeds supply and supply is limited, such a product’s price should rise.

The issue here is we are not dealing with a physical product or service being limited in supply. Bitcoin’s token cap is nothing more than an arbitrary figure plucked from thin air. 

Take gold, for instance; the commodity is considered scarce because we can’t make any more gold than can be found or mined. That is not the case with Bitcoin. Mere community consensus could lead to a spike in the value of the crypto.

Bitcoin offers the perception of scarcity, and this falsity has helped drive its valuation higher.

The Issue Of Acceptability and Utility

Additionally, you will hear about bitcoin being the eventual fate of worldwide payments. Once more, this isn’t correct or conceivable. 

While the number of organizations accepting bitcoin as payment is climbing, the actual number of organizations willing to acknowledge bitcoin is still small. As indicated by financial services company Fundera, only around 2,300 U.S. organizations accept bitcoin as payment. However, the U.S. Census Bureau discovers 32.5 million organizations in the U.S., including sole ownership. Regardless of whether we just tallied organizations with a worker, 2,300 out of 7.7 million organizations accept bitcoin. We still have a very long way to go.

Also, around 40% of bitcoin tokens are held by financial backers and kept unavailable for general use. That leaves about 11.2 million bitcoin for exchanges. The estimation of these tokens is near $380 billion. In 2019, worldwide GDP added up to $142 trillion.

The most considerable boost for bitcoin recently comes from the investment of $1.5 billion by Tesla and its plans to accept crypto as a payment means. Analysts have also suggested this was the reason for the most recent rise in value.

Bitcoin Does Not Store Value

A man trying to swipe a bitcoin like he would a credit card. Bitcoin does not store value like gold, so its value is assumed.

Regardless of how much bitcoin lovers like to liken bitcoin to gold, it will never be a store of value. 

Store of value worth resources typically have recognizable connections to government-backed fiat monetary forms, and they aren’t too unpredictable. For example, gold has a recognizable backward relationship with the U.S. dollar, and an actual shortage floats it. 

Bitcoin doesn’t have any recognizable connections to government-backed fiat monetary standards. Enthusiasts might want you to accept that an inflated U.S. cash supply is uplifting news for bitcoin, yet that would possibly be valid on the off chance that it had some like-for-like central government backing and had genuine shortage – neither of which is reasonable. 

Bitcoin had likewise lost 80% of its worth on various occasions over the previous decade, including a modest bunch of occurrences when it was split in approximately 24 hours. That is not how store-of-value worth resources carry on.

There’s No Obstruction Of Entry 

It’s likewise essential to note that the cryptocurrency space has no obstruction to entry. All that is required is some time and cash to create a blockchain with or without a fastened digital currency. There are zero assurances that blockchain will be embraced for an expansive scope or that bitcoin will be in any capacity essential. 

Various blockchain projects are being developed that may work with fiat monetary forms or without an advanced token by any means. Below are some other Cryptocurrencies struggling with acceptance and hoping that crypto will gain more acceptance.

  • Ethereum (ETH)
  • Litecoin (LTC)
  • Cardano (ADA)
  • Polkadot (DOT)
  • Bitcoin Cash (BCH)
  • Stellar (XLM)
  • Chainlink
  • Binance Coin (BNB)
  • Tether (USDT)
  • Monero (XMR)

Bitcoin continues to lead the pack of cryptocurrencies in market capitalization, user base, and popularity. Bitcoin may have a first-mover advantage, but hundreds of ongoing blockchain projects offer possibilities beyond the financial space.

Simply put, bitcoin is risky. It’s driven by short-term emotions, technical analysis, and misinformation about its scarcity, utility, and long-haul potential. It’s the one investment you ought to stay away from in 2021.

Caveat Emptor – Investors Beware

A man holding a wallet with different cryptocurrencies, such as litecoin, etherium, and bitcoin.

There are some arguments in favor of cryptocurrencies that I find interesting and worthy of considerations. For example, other virtual currency forms, such as Ethereum, are used to decentralize monetary frameworks for those without access to conventional financial products. 

Some altcoins are being supported as they have more current features than Bitcoin. For example, the capacity to deal with more exchanges each second or utilize diverse agreement calculations like Proof-of-stake.

The PayPal Boost

It’s an obvious fact that crypto adoption is developing at a quick speed. In October 2020, the famous digital payment service PayPal (PYPL) introduced a new service, empowering its customers to purchase, hold and sell Bitcoin and other digital currencies directly from their accounts. 

Based on Bloomberg’s data, almost 26 million dealers from PayPal’s network already accept cryptocurrencies.

Other Boost For Bitcoin

  • Payment service Square (SQ) bought 4,709 Bitcoins for $50m. While MicroStrategy purchased $1.13bn worth of BTC. Billionaires like Stanley Druckenmiller and Paul Tudor Jones have showed increased interest in this crypto investment.
  • According to JP Morgan’s note from October 2020, Bitcoin now competes with gold as an “alternative” currency: “Even a modest crowding out of gold as an ‘alternative’ currency over the longer term would imply doubling or tripling of the Bitcoin price.”
  • Speaking of the coin’s future, Rick Rieder, BlackRock’s chief investment officer of fixed income, said in his interview with CNBC that BTC “is here to stay.” Adding that millennials are open to cryptocurrencies and digital payments, boosting Bitcoin adoption.

Conclusion

Continued support from investors and further adoption will strengthen Bitcoin’s status as a means of payment and a store of wealth. These will further enhance bitcoin’s value, but the other factors I already discussed will make this digital currency remain the most volatile investment you can find in the market. 

Bitcoin investment is not for the faint-hearted, so approach it with caution, get all the information you need, especially about the rise and fall of the digital currency and its likes since inception. 

I’m always open to further knowledge and contrary opinion, especially on the topic of Bitcoin. So ai will be looking forward to your comments and feedback. 

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