Investing in Bitcoin? Beware the bubble of cryptocurrencies may burst soon

 

Introduction

As the world is shaping itself for a complete technological revolution and every aspect is witnessing innovation and filled with new inventions, the traditional payment medium like money, debit cards may not remain the ideal exchange medium and that is the reason we are observing the greater use of wallets and cryptocurrencies.

As said, when we talk about the cyptocurrency, Bitcoin is the first thing that hit our mind and this is the main reason that currently Bitcoin is another name for cryptocurrencies.

Further, in the recent times, Bitcoin has gained so much popularity among the general public that everyone is looking at it as an alternative to share market because of very high returns and that too in a very shorter span of time keeping all the related risk aside.

Why has bitcoin become so popular?

Bitcoin is spreading day by day like a fire in the forest. Further, the most interesting fact about the Bitcoin is that people are investing in it without any proper knowledge and related risk. All that people see is the high return on investment. Everyone wants to double their investment and they all see Bitcoin as the only way of earning more money in a very short span of time.

Further, the Bitcoin is rising as it will never come down however; it is something against the law of nature. Faster you rise, harder you fall and hence, before investing in Bitcoin or any related mechanism, one must it completely and the related risk so that you can decide the fate on your own.

Understanding the Bitcoin – The laymen type

Suppose you have a sheet of paper which has been parted into 100 pieces with a value of $1 per piece. All the 100 pieces are sold to the owners for $1 million. Now instantly, the price per piece went up from $1 to $10,000 per piece. Now this surge has been publicised by the owners, media in such a way that other rich people get impressed and invest more money into it. However, due to limited pieces, the price of the paper sheet went up further. Seeing this surge, more people at large get interested and started investing money into the same and the trend goes on.

As said, everybody was impressed by it but nobody understood the real value of that paper piece which is nothing. The paper had no intrinsic value and demand was more than the supply and hence, it only went up.

However, it will not go up until infinity and soon will reach the saturation point and that time, it will fall and will fall very hard.

If you understood the above case properly then you will realise that the sheet of paper s nothing but Bitcoin. Bitcoin has no intrinsic value but it is being traded at a very high price only due to very high demand and limited supply.

The interesting part – 40% of bitcoin is owned by 1000 people

Do you know 1000 bitcoin holder who owns 40 % of the market i.e. $100 billion out of the total market cap of $250 billion which means they can easily tumble the values of the cyptocurrency at any point of time and assimilated the money of the other innocent investors. These people are technically known as whales.

In other words, the future of bitcoin lies in the hands of just 1000 people and they can any time increase or decrease the value of bitcoin and hence can play with your fortune.

 

Key points – Why bitcoin bubble may Burst

To line it up, there are various key points related to bitcoin which may result in downfall of the virtual currency;

• No intrinsic Value: Since, there is no intrinsic value of the bitcoin, the currency will fall in the longer run for sure.
   

• Overpriced: Further, if something does not have an intrinsic value i.e. no asset backing, then it is considered as overpriced and hence, as per the law of nature, the overpriced currency will fall back to their original value and hence, be cautious if you are keeping it for a longer run.
   

• Manipulation: What if the whales choose to sell their part of bitcoin? If they do, then the bitcoin will fall like a house of card and will result in losses of billions of dollars to many diversified investors.
   
• Government ban: We have seen a repeated warning from the RBI and the Indian government regarding trading in bitcoin and as per the latest news, Arun Jaitley said in the parliament that trading in bitcoin and other currencies is illegal and hence investors may invest at their own risk.
   
• Unregulated Exchange: We all recognize that exchanges are not regulated that means they can do whatever they want to do with your precious money. Further, what is the guarantee that they are actually buying or selling bitcoin. Further, what is the guarantee that they will not default when a large number of people starts selling their bitcoins?

 

Threats recognised by some industry leaders
 

• Global financial leaders such as JP Morgan boss Jamie Diman and Golden Sach's Lloyd Blanfein have warned that the currency is ripe for use by the fraudster. Someone who is in possession of a good amount of bitcoin as it is open source software, would become a target of criminals, since they are less like stock but more like cash. 
   

• Reserve Bank of India (RBI) has also warned people for the third time about the risks involved in cryptocurrencies. The regulator has reiterated the fact that it is not a legal tender and people should trade at their own risk.
   
• The study, reported by Fortune, concluded that between 2.78 million and 3.79 million bitcoin — 17 to 23 per cent of existing supplies— are lost, amounting to more than $US30 billion.

Conclusion

Hence, there are many threats to the dreams of bitcoin and therefore one must keep caution while investing into the bitcoin and other related cryptocurrencies.