Bitcoin has been gaining in popularity as of late. However, it has fundamental downsides that means diversification with minimizaton of risk is key. The below highlight some common drawbacks of Bitcoin investing.
- Extreme Volatility - Bitcoin is highly volatile with rapid fluctuations in market sentiment.
- Regulatory Uncertainty - Bitcoin has an uncertain trajectory with significant impact on value from regulatory changes that are still evolving.
- Security Risks - Bitcoin wallets and exchanges are targets for hackers. If you lose access to wallet or it is compromised you could lose your investment.
- Lack of Intrinsic Value - There is no intrinsic value. It is difficult to measure the asset value of Bitcoin in real terms. The value is derived from demand and speculation.
- Energy Consumption - Bitcoin is a drain to the environment with a growing energy footprint.
- Limited Acceptance - Bitcoin is not widely accepted form of payment and has limited use cases.
- Psychological Risks - Bitcoin is emotionally draining due to high price fluctuations.
- Tax Implications - Bitcoin investing comes with complex tax implications that vary by jurisdiction which means understanding your tax obligation can be tricky.
