Big Cryptocurrency Concerns: This Is What Experts Have to Say About it
The price of bitcoin hit a record high of over $44,000 on Monday after Tesla reported in an SEC filing that it had purchased $1.5 billion worth of the cryptocurrency, giving it a market value of over $800 billion. It’s only the beginning, according to bitcoin bulls. On Thursday, Chamath Palihapitiya, the founder, and CEO of Social Capital told CNBC’s “Halftime Report” that “it’s probably going to $100,000, then $150,000, then $200,000.” “What time period are you talking about? I’m not sure. It can take five or ten years, but it’ll get there.”
Many people are asking if they should invest in bitcoin because of all the hoopla. However, the cryptocurrency raises a slew of issues: Some people believe bitcoin is a speculative bubble, too hazardous to invest in, or vulnerable to fraud, to mention a few concerns. CNBC Make It spoke with bitcoin and fintech experts about some of the most common concerns regarding digital currency.
Is Bitcoin Really Risky For Investors?
Bitcoin, in comparison to most investments, is “a highly volatile, extremely dangerous investment,” according to James Ledbetter, editor of fintech newsletter FIN and CNBC contributor. “If you look at the price of bitcoin throughout the years, there have been a number of instances where it has skyrocketed and then plummeted.”
While this might result in large profits, it can also result in large losses. As a result, others, such as investor Mark Cuban, compare bitcoin to gambling and suggest only investing what you can afford to lose. “At the very least, you must be mentally and financially prepared in the event that [a crash] occurs again. Ledbetter adds, “It may happen tomorrow.”
Despite its high selling price, Anthony Pompliano, co-founder of cryptocurrency hedge firm Morgan Creek Digital Assets and a bitcoin investor, reminds us that “you can go and buy as little as $5 of bitcoin since there is the possibility to acquire fractional shares called satoshis.” “Just start small, do your homework, and learn as much as you can,” Pompliano advises.
Do you feel that Bitcoins Wallet is Safe?
Many celebrity accounts were stolen in a bitcoin fraud in July, including that of President-elect Joe Biden, former President Barack Obama, and Tesla CEO Elon Musk, to name a few. As a result, hundreds of thousands of dollars in bitcoin were fraudulently moved. Many people were concerned about the safety of bitcoin as a result of this.
“There have been numerous incidents of bitcoin theft and fraud that I believe would give the typical investor pause, especially if they were planning to invest a significant amount of money. “I believe those are reasonable concerns,” Ledbetter adds. But he thinks they’re “overblown.” While bitcoin allows users to deal without giving personal information or disclosing their identities (possibly making fraud simpler), it is not completely anonymous. Each bitcoin transaction is recorded on the blockchain, a digital ledger in which a user’s cryptocurrency “wallet” is represented as a unique set of numbers and letters. A scammer could be tracked down after the fact using this method.
Pompliano said, “I usually remind folks that bitcoin has a public ledger.” Furthermore, thanks to blockchain, bitcoin is exceedingly difficult to hack. According to Paul Vigna, a Wall Street Journal markets writer, “to hack it, you’d have to take over the network and to take over the network, you’d need your own network of computers working 24/7, and that would cost billions of dollars. A regular stock account with a brokerage, according to Ledbetter, might also be hacked. “There is always the risk of fraud or a security breach.” Experts advise using a reputable brokerage – “these well-established places have a robust security protocol and a speedy application to protect,” adds Ledbetter.
Overall, he says, “things happen,” but “when you look at the great stories of theft, they tend to be institutional and on the periphery.” Cryptocurrency scams are “a common way for scammers to deceive individuals into paying money,” according to the FTC website, and most scams “appear as emails seeking to blackmail someone, online chain referral schemes, or fake investment and business opportunities.”
“It’s not like bitcoin is inherently dangerous– it’s more about how individuals are handling or managing it,” Ledbetter explains.
Can we Convert Bitcoin easily to fiat and transfer it?
Most popular bitcoin transactions are now carried out by converting bitcoin to fiat currency, such as the US dollar. And, according to Ledbetter, the process of transferring bitcoin to other accounts and converting it to other currencies, such as the US dollar or another cryptocurrency, is now “clunky” and time-consuming.
Plus, if you’re utilizing bitcoin for transactions, “you really need to read the tiny print — there are normally costs connected with those transactions,” Ledbetter notes. “Sellers do not have the confidence to execute huge transactions in bitcoin yet,” investor Kevin O’Leary, chairman of O’Shares ETFs, told Pompliano on “The Pomp Podcast” in December, citing costs as one of the reasons. “I’m sure this will change in the future, but not right now.” Pompliano believes that in the future, innovation will lead to technology that “makes it easier to spend bitcoin with faster transactions that are cheaper, more efficient, and more usable.”
Is Bitcoin an Illusion?
Those who are wary about bitcoin are afraid that the current rally is similar to the 2017 bubble. In December, David Rosenberg, chief economist at Rosenberg Research, told CNBC’s “Trading Nation” that “the parabolic move in bitcoin in such a short time frame, is exceedingly abnormal.” According to CNBC, Rosenberg views bitcoin to be “the biggest market bubble right now.”
The 2017 increase, however, was different, according to bitcoin bulls, since it was fueled by individual investor speculation, whereas the current rally is being driven by institutional investors buying the coin. “Those publicly recognized investments of huge firms occur in the real world,” adds Ledbetter. “You can point to them and say, ‘Right now, bitcoin is becoming more valuable.’”
Indeed, bitcoin has recently earned backing from major investors such as Paul Tudor Jones and Stanley Druckenmiller, as well as important financial companies such as PayPal and Fidelity, as well as Square and MicroStrategy, which purchased bitcoin using their balance sheets. There are, however, as many advocates as there are skeptics. “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a poor ending,” famed investor Warren Buffett told CNBC in 2018. Nonetheless, any potential bubble “may not burst overnight,” according to Ledbetter.
Can Bitcoin be used as a Shield Against Inflation?
Those who advocate for bitcoin often compare it to gold, claiming that it is a hedge against inflation and the US currency and that it will withstand any economic or infrastructure collapse. “Every single currency in the world is inflationary, and it is controlled by governments,” Pompliano argues. “And those governments have very tiny groups of people making choices about how that currency is handled.” Bitcoin is the “greatest guardian of purchasing power,” according to Pompliano because its quantity is restricted and it is regulated by computer code. Indeed, “there’s no doubt that bitcoin can be a hedge against inflation, depending on the time period of when you buy and whether it’s held or sold,” according to Ledbetter.
Bitcoin, on the other hand, is “way more volatile” than gold, according to Ledbetter. “It’s a terrific hedge against inflation as long as bitcoin is going up, but it can also go down, and you’re losing money — you’re not just not keeping up with inflation, you’re actually losing capital.” However, not everyone agrees.
“It is not a hedge against doomsday scenarios, no matter how much [bitcoin] fans try to pretend,” Cuban told Forbes. “Countries will take steps to defend their currencies and their power to tax, so the more people believe this is more than just a store of money, the greater the possibility of government intervention.