Is Bitcoin a good investment, or is Bitcoin dead?

Bitcoin might not be dead yet, not with its price currently standing at around $10,300. But that doesn’t mean the mania won’t end badly some time in the future, like tulip bulbs and South Sea stock.

How do we tell? I did a brief survey to see what various people think are the biggest risks of investing in cryptocurrencies. It’s nothing scientific, just the result of some online searching, but there are some common trends out there.

A haven for hackers

One fear is fraud, rife in the crypto world. Fraudulent activities include hacking online accounts and stealing their contents, and that’s where the lack of regulation and anonymity of Bitcoin counts against it. While real bank accounts are very secure and there’d be serious action if banks allowed them to be hacked and emptied, try calling the police and telling them somebody’s stolen your Bitcoins.

Then there are fraudulent accounts, fraudulent exchanges, and fraudulent cryptocurrency wallets, and there’s very little anyone can do about it all.

Random guesswork

Another commonly stated big risk is simple volatility. While Bitcoin is above $10,000 now, at its peak it was almost twice that price. And over the past 12 months it has been very erratic, falling to less than $4,000 at one point in December.

That results in massive uncertainty over where it’s going next. There are some in cryptocurrency enthusiast circles who reckon Bitcoin is set to soar again, way above its previous $19,783 peak. That was a bubble, you see, but the 2019 climb isn’t. The reasons for the difference are, I have to confess, not entirely comprehensible to me, and they involve talk of things that I don’t see as even connected to the stuff.

Easy to replicate

Why not just make your own? Blockchain technology is clever, but it’s not secret, and anyone with the computing power to do the so-called ‘mining’ can churn out their own coins. And that’s exactly what they’re doing. Even as long ago as January 2018, the Guardian suggested the total value of cryptocurrencies in existence then was enough to seriously change the course of human history — by eliminating poverty and things like that.

The reason that can’t happen is that the value of all those computer bits isn’t actually real, and it can’t all be converted into genuine currencies to spend on such projects — try to cash in any significant portion of the world’s cryptocurrency supplies and the price will crash. No, the value of a real currency is the economic productivity that backs it up, and anything else is illusory.

Biggest risk

The biggest risk with Bitcoin as an investment is that it actually isn’t an investment at all. To me, investing means putting your money into something that will generate actual products or services, which in turn will generate new cash for you. And the ideal investment will provide you with rewards regardless of how much the next speculative punter who comes along is willing to pay to buy it from you.

In short, investing for me means buying shares in good UK companies which generate real profits and reward their shareholders with dividends.

And Bitcoin? Ultimately it’s just a kind of Ponzi scheme, and they only ever end up one way.