Should you buy Bitcoin? (Strengthening existing dangers).

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When Bitcoin goes down, they say “buy autumn”.
When Bitcoin went up, they said it would “continue to rise.”
There never seems to be a bad time to invest in Bitcoin, implying that no matter how you look at it, Bitcoin is a good investment.
But in 2022, Bitcoin not only fell, but also fell. From its peak in November 2021 at over $64,000, Bitcoin has now dropped by more than 75% to less than $16,000 today.
Does that mean it’s time to join? What are the risks and is it worth it?
Is Bitcoin still a good investment in 2022? Let’s investigate.
Is Bitcoin a good investment?
Whether Bitcoin is a good investment or not depends on your personal definition of what makes a “good” investment.
Most investors will define a “good” investment as one that follows an asymmetric risk profile where the potential rewards outweigh the risks.
Based on this definition, let’s look at some examples of good and bad investments.
Taking stock from high-yielding S&P 500 index funds like the Vanguard 500 Index Fund ETF (VOO) is widely considered a good investment.
VOO forms the backbone of many low- to medium-risk portfolios as it gives us a fairly clear example of asymmetric risk. The diversified fund has a low expense ratio (0.03%), high float and has produced consistent returns of around 14%.
Medium return + low risk = good investment
In contrast, betting in Las Vegas is a bad investment. Although all I did was turn $100 into $150 at the poker table, resulting in a 50% return in five minutes, it was still a bad investment. Statistically, players in Las Vegas win less than 40% of the time, and because I have blind dog poker skills, my personal odds are even lower.
High returns + very high risk = bad investment
So where does that leave Bitcoin?
Well, Bitcoin certainly has no problems in the department of possible returns. Bitcoin is the fastest appreciation asset of the decade. And despite the recent decline, Bitcoin is still worth $15,767.40 today compared to $3,891.31 just three years ago.
Sure, the father of digital currencies has had its ups and downs (and is currently in a major slump). But let’s give it a “very high” score in the category of potential returns for now.
But the risk… Hoo, boy.

Bitcoin does not fit into an asymmetric risk profile

The problem with Bitcoin isn’t just the high risk; the risks are incalculable.
You see, to assess the potential investment risks, you need to look at the data. Stocks and pieces of real estate provide us with a lot of ammunition in this regard, including, but not limited to:
• 10-K shape
• P/E ratio
• Floating stocks
• Competition
• Industry Performance
• Market perception
So, whether it’s a retailer-created formula or an advanced AI-powered algorithm from a hedge fund, this data fills in the gaps to help investors predict the likelihood of a good return and therefore the risks involved in investing.
Bitcoin, on the other hand, gives us very little to chew. Instead, it is only supported by demand and demand, and as a metric, investor demand is too volatile and temporary to predict.
Who can accurately predict and model when perceptions of a particular asset or trend will change? Who could have predicted that Elon Musk’s appearance on SNL would instantly erase 24% of DOGE’s value?
That’s why it’s impossible to include Bitcoin in an asymmetric risk profile. Digital assets are highly volatile and unpredictable, with so little real data retaining their value, that the risks can’t even be properly assessed.
And without the certainty that it is a good investment, we must assume otherwise:
Very high yield + ??? Risk = Bad Investment
Despite its performance, Bitcoin is not a good paper investment.
At the same time, it’s hard not to feel FOMO when everyone knows someone who stupidly gets rich just by buying Bitcoin at the right time. So, while it’s hard to justify on paper, isn’t it worth the chance to get sky-high returns?
Not yet, and here are two reasons why:
1. You make strategic decisions with your money, and FOMO is not an investment strategy.
2. FOMO also implies that you will “lose” huge returns on Bitcoin year after year. But remember, the value of Bitcoin is unpredictable; So assuming that it will continue to increase as it has increased will fall prey to the gambler’s fallacy.
In short, the volatility of Bitcoin, and the scarcity of factors that determine its market value, make it too difficult to predict and therefore do not fit the asymmetric risk profile in which the house (you) always win.
Continuous reading: How to trade cryptocurrencies (and if you must)
What are the additional risks of investing in Bitcoin?
Investing in Bitcoin is not only subject to market volatility; It is also vulnerable to some serious external threats that can wipe out a large amount of value overnight, or even your entire portfolio.
Here are some examples to keep in mind when considering investing in Bitcoin:
Hacking, fraud, and theft
Hackers and scammers stole a record $14 billion worth of crypto in 2021, according to CNBC, representing a 79% increase from 2020 levels. Mt. Gox handled 70% of the world’s Bitcoin transactions when it was hacked in 2014, and 650,000 bitcoins were never returned to their rightful owners.
Now, you can protect your cryptography from hackers by storing your private keys in cold crypto wallets, which is unlike hot crypto wallets that live completely offline. However, using cold wallets introduces a completely new form of risk, as we will see below.
Related: How to Spot Crypto Scams (Complete Guide)
Losing Your Cold Wallet
What does a USB stick, hard drive, or even a piece of paper have in common?
Everyone can get lost.
Just ask James Howell, who accidentally dumped the wrong hard drive in 2013 and has been looking for it in a landfill ever since. And who can blame him for getting his hands dirty and not giving up? There are 7,500 BTC on that hard drive that is now worth more than $277 million.
In total, 20% of Bitcoins are lost due to lost or forgotten private keys.
Regulation
Increased regulation not only threatens traders’ portfolios within the country’s borders, but can also lower global prices.
India attempted to enact an anti-crypto law in 2018, but in 2020, the Supreme Court overturned it. This has caused Indian investors to “pile into the market,” according to Reuters, only for a new ban to emerge proposed in 2021, which officials “expect to enact into law.”
Russia’s central bank also proposed a ban on crypto activity in 2022, and when China published plans for an updated crackdown in May 2021, Bitcoin fell $10,000 or ~25% in a matter of days.
Bad press
In addition to tightening the regulatory strings, Bitcoin seems particularly vulnerable to bad news.
When Terra withdrew earlier this year, Bitcoin fell. Later, when Three Arrows Capital went bankrupt (and took with it several crypto lenders), Bitcoin plummeted again.
And more recently, the collapse of FTX has triggered the contagion of new cryptos and pushed Bitcoin to the lowest level we have seen since November 2020.
Metaverse
Although Facebook investors seem to strongly disagree, Mark Zuckerberg believes we will all be in the metaverse in the next five to ten years.
And while investors are already seeing a huge opportunity in virtual real estate and NFTs, the only asset that doesn’t seem to have a waiting point in the metaverse is Bitcoin. Ethereum supports NFTs. Cardano uses proof-of-stake to make smart contracts greener. Companies like Meta, Walmart, and others are developing their own proprietary stablecoins to use as stores of value.
So where does that leave Bitcoin?
With high power consumption and limited practical use, it looks like Bitcoin may be too old-fashioned for the metaverse. And as more and more investors become aware of this, they can start turning their BTC into a more future-ready crypto.
Related: The best Metaverse stocks to invest in today>>>
What about shopping and HODLing?
Then, is Bitcoin a better long-term investment? Should you buy and HODL?
Bitcoin’s messy short-term volatility, but surprising overall gains since 2012, have led many investors to consider long-term investments.
After all, HODL is the unofficial credo of dedicated crypto investors.
For the uninitiated, HODL originated from a post on the BitcoinTalk forum in 2013, in which GameKyuubi users, of course drunk whiskey, proudly stated “I DO HODLING. ”
HODL is finally getting its own backronym: Holding On for Dear Life.
So, buying and HODLing is still valid today?
While Bitcoin has seen a rise from 2012 to the present, the growing threat may indicate that it is finally running out of jet fuel.
“It seems like the asymmetric reward you can get when these coins are trading on nickels is no longer possible with a 5-digit valuation,” said David Hunter, CFA, CAIA, Director of Research and Investment at CPC Advisors. “In fact, it seems that payments can be asymmetrical in the wrong direction.”
Varun Marneni, CFP, executive vice president of CPC Advisors, noted that crypto has lost more than $2 trillion since its peak, so “investors should not miscategorize crypto as a safe-haven asset class.”
Varun’s final advice is to tread carefully before following crypto in breach.
How can I continue to make money with cryptocurrencies (without risk)?
There is a classic idiom that I think applies well to Bitcoin:
During the gold rush, he sold shovels.
Buying Bitcoin directly is too risky for anyone trying to manage their money using asymmetric risk.
But there is still money to be made.
So what is the equivalent of “selling shovels” for Bitcoin? How can you benefit from (potentially) an increase in the value of Bitcoin while also hedging your risk?
Here are some ways to invest in crypto without buying anything:
1. Buy crypto stocks
2. Buy cryptographic ETFs
3. Investing in Grayscale Bitcoin Trust
4. Mine and basically get free crypto (see How to Start Mining Bitcoin in 60 Seconds)
5. Buy blockchain stocks and ETFs
6. Investing in companies that invest in crypto
The Bottom Line
Bitcoin is the Jeep Willys of the crypto world. And like that respected army truck, he has fought and won some very important battles, helped pave the way for his successors, and deserves our respect for all the pioneers he has done.
But at the same time, it is an antique. It is unsafe, unstable, and every year, modern regulations try to remove it.

 

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