In a NutshellInvesting in Bitcoin cryptocurrency has its pros and cons. While its transactions are relatively secure, it’s also prone to volatility, with large dips and spikes in price.
Cryptocurrency is a popular investment strategy, with about 20% of U.S. adults owning some form of cryptocurrency, according to a 2023 survey from cryptocurrency marketplace Coinbase.
Bitcoin is one of the oldest and most popular cryptocurrencies. And for the crypto-curious, it’s where you might first consider dipping your toes into cryptocurrency investing.
Let’s review some of the top pros and cons of investing in Bitcoin.
- Accessibility and liquidity
- User security
- Independence from a central authority
- Return potential
- No government regulations
- Environmental concerns
- Not accepted everywhere
Pros of Bitcoin
Although Bitcoin was created in 2009, it’s still a relatively new kind of currency. Learning more about how Bitcoin works can help you decide if it’s a good investment opportunity for you.
Accessibility and liquidity
One of the biggest advantages of Bitcoin is that it’s an accessible and versatile currency. It can also be used to purchase goods and services from the growing list of places that accept it.
This may make spending money in another country and exchanging for other currencies easier, with the bonus of having no foreign transaction fees.
If you want to cash out, you can sell Bitcoin on a cryptocurrency exchange.
Although not anonymous, Bitcoin technology identifies users by numerical codes. These private keys prove your ownership of the cryptocurrency and can be stored in a crypto wallet.
Block chain technology acts as a public record of transactions. This technology also acts as security because it mathematically guarantees that the transaction comes from the owner’s wallet.
Independence from central authority
Bitcoin is a decentralized currency, meaning it’s not regulated by a single government or central bank.
That means governments can’t control Bitcoin like they can with centralized fiat currency such as the U.S. dollar.
Bitcoin prices can be highly volatile, with drastic changes from month to month and even daily. For instance, in December 2022, Bitcoin was priced at about $16,000, and it spiked to more than $22,000 in March 2023. The spikes (and dips) are the result of several factors, including that Bitcoin is a fairly new product and market. The overall economy also plays a role. However, the constant movement provides opportunities for investors who want to buy Bitcoin at lower prices and sell at a high point.
Cons of Bitcoin
Despite its rapid growth and increasing number of users, there are also disadvantages of Bitcoin to consider.
When Satoshi Nakamoto created Bitcoin, a limit of 21 million Bitcoins was imposed, causing some to regard the currency as being absolutely scarce. That scarcity is part of what makes Bitcoin potentially valuable, but it also contributes to price volatility.
There are other factors that influence Bitcoin’s volatility, such as uncertainty about its future value and uses, as well as past security breaches. Bitcoin’s decentralization also means that there’s no guarantee of a minimum valuation, so if a large group of investors decides to stop using Bitcoin and sell them, the value could decrease greatly and affect people with a large amount of the cryptocurrency.
No government regulations
Decentralization can be viewed as one of the benefits of cryptocurrency, but it can also be considered a disadvantage of Bitcoin since it means investing is not regulated. Unlike a currency that’s regulated by a central bank, Bitcoin transactions don’t come with legal protection and are typically not reversible, which makes them susceptible to scams.
Keep in mind that Bitcoin is taxed, so you have to report capital gains and losses on your annual income tax return. However, you may be able to write off crypto losses from the tax year if you sold at a loss.
Bitcoin transactions are irreversible and final, so you don’t have much recourse if you send the wrong amount or to the wrong recipient. This can lead to a fair share of purchase regret since transactions are unregulated and anonymous.
Plus, most cryptocurrency users choose to keep their digital currency in a cryptocurrency wallet, which puts them at risk of losing their investments if they lose access to their private key.
In the event a hard drive crashes or a virus corrupts the records or your wallet, your funds could become inaccessible or gone completely in a matter of minutes.
Bitcoin’s mining process requires a significant amount of energy, as it involves solving complex mathematical problems to verify transactions and create new blocks in the blockchain.
This process requires lots of computational power, which in turn requires a large amount of energy. And as the Bitcoin network grows, the amount of energy consumed by mining is likely to increase, leading to greater environmental concerns.
This high energy consumption has raised concerns about the environmental impact of Bitcoin mining.
However, there are efforts under way to address these concerns. Some mining companies are exploring the use of renewable sources of energy, such as solar or wind power, to power their operations.
Not accepted everywhere
Even though more major companies, like Microsoft, are beginning to accept Bitcoin, it’s still not widely accepted. This puts a limit on where you can spend your money, unlike using most credit or debit cards.
What’s next: Is investing in Bitcoin worth it?
Is it smart to invest in Bitcoin? Although there are some benefits of cryptocurrency and Bitcoin specifically, many people still view it as a risky investment. Just like any investment, investing in Bitcoin requires you to complete thorough research ahead of time.
Going through a list of pros and cons of Bitcoin is a first step. It’s also a good idea to study how accessible the market is as well as the expectations and risks associated with it.