Mitrade Insights is dedicated to providing investors with rich, timely and most valuable financial information to help investors grasp the market situation and find timely trading opportunities.

2021

Best News & Analysis Provider

FxDailyInfo

2022

Best Forex Educational Resources Global

International Business Magazine

Insights

News

5 Must-Know Risks Before You Buy Bitcoin

Source The Motley Fool

Bitcoin (CRYPTO: BTC) continues to prove that it's one of the best performing assets out there. In the past five years, it has soared 1,200%, with a monster 127% gain just in 2024 (as of Dec. 4) to push above the $100,000 mark for the first time. Bitcoin's tremendous momentum is certainly drawing lots of investor attention for those looking to potentially boost their portfolio returns.

But before you buy the world's most valuable cryptocurrency, here are five risks you need to know.

1. Government intervention

Because Bitcoin is a global and decentralized digital currency that isn't controlled by a single authority, it is a direct threat to central banks across the world, as well as their fiat currencies. Consequently, it's obvious that a risk would be governments making it illegal to own and mine the crypto within their borders, thus aiming to eliminate a competing monetary system.

With a Trump administration entering the White House, the market is optimistic that regulations friendly to the crypto industry will be put into place here in the U.S. There's even talk of creating a national Bitcoin strategic reserve.

2. Technical challenges

Other well-known cryptocurrencies, like Ethereum, Solana, and Cardano, aim to be top networks for the development of decentralized applications. And as a result, they all have complex plans to implement software updates that work to improve functionality and security.

But there's always a risk that a new update introduces technical challenges if there are software bugs or errors. Bitcoin is different in that its setup is very simple.

That hasn't prevented the community from occasionally adding updates to the blockchain, whether it's to improve scalability or privacy. If a complicated upgrade is introduced, one that exposes Bitcoin's network to malicious actors, it could result in lost confidence and a price that tanks.

3. Quantum computing

Bitcoin's security comes from something called public key cryptography. Only the person who knows the private keys is able to send their Bitcoin holdings.

There are worries that quantum computing, which essentially consists of supercomputers that can handle extremely complex problems, could crack Bitcoin's cryptographic setup. This could expose everyone's private keys, making the entire network worthless.

In this unfavorable scenario, other highly secure data repositories would also be in serious trouble. Think about government nuclear codes or banking information held by financial institutions. The world would be in big trouble.

I don't doubt that Bitcoin developers are hard at work trying to defend the network against quantum computing. Or even better, maybe there's a way to incorporate quantum computing tactics to strengthen Bitcoin.

4. How to increase speed

One of Bitcoin's most notable criticisms is that it's too slow. As of this writing, its blockchain can process only about six transactions per second. That's far below Visa's 65,000.

The Lightning network, a Layer-2 scaling solution meant to speed up transaction times and lower costs, is a possible fix. This could make Bitcoin a more viable method of payment.

But what if it is never able to scale up in a secure manner and handle more transactions? Then being a store of value will be its only real use, a perspective that could feed the bearish narrative.

5. Volatility concerns

Given its incredible historical performance, Bitcoin has undoubtedly been able to raise someone's purchasing power over time. But there are still critics who will point to its failure at becoming a true store of value. That's due to its heightened volatility. The crypto has experienced multiple drawdowns of greater than 50% in the past, which can be extremely difficult to deal with.

As Bitcoin matures, with more owners and more capital flooding in, perhaps its volatility will start to decline. It's no longer still an esoteric internet money. Instead, it's a legitimate global financial asset now.

But if volatility remains, it could keep a large of number of investors away. And this hurdle could cap Bitcoin's true potential.

Should you invest $1,000 in Bitcoin right now?

Before you buy stock in Bitcoin, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $872,947!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of December 2, 2024

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, Solana, and Visa. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

Recommended Articles

【Daily Brief】10-year Treasury yield briefly tops 5%, S&P 500 slips to 7,602 and the dollar firms at 99.3 as the Fed's decision eve begins The 10-year Treasury yield touched 5.014% on Monday — its first print above 5% since October 2023 — while the S&P 500 closed 0.48% lower at 7,619.98 and the dollar index firmed to 99.3. Here is the full market wrap ahead of Wednesday's FOMC decision, the dot plot and the August retail sales report, plus today's CLARITY Act Senate vote.

Author Irene Q.

Sep 15, Tue

The 10-year Treasury yield touched 5.014% on Monday — its first print above 5% since October 2023 — while the S&P 500 closed 0.48% lower at 7,619.98 and the dollar index firmed to 99.3. Here is the full market wrap ahead of Wednesday's FOMC decision, the dot plot and the August retail sales report, plus today's CLARITY Act Senate vote.

October hike odds climb toward 60% as Goldman and BofA both flip — what Warsh's "dose of accommodation" really changed Rate futures now price roughly 55% to 62% for a 25bp hike at the October 27-28 FOMC, up from about 30% before Chair Warsh's post-meeting framing that the Fed is merely "removing some accommodation." Goldman Sachs has added an October hike to its forecast and Bank of America now sees moves in both October and December. Here is the repricing, the language behind it, and the two data points that decide it.

Author Irene Q.

Sep 23, Wed

Rate futures now price roughly 55% to 62% for a 25bp hike at the October 27-28 FOMC, up from about 30% before Chair Warsh's post-meeting framing that the Fed is merely "removing some accommodation." Goldman Sachs has added an October hike to its forecast and Bank of America now sees moves in both October and December. Here is the repricing, the language behind it, and the two data points that decide it.

Four jobs reports in five days: what JOLTS, ADP, claims and the September payrolls mean for the October Fed decision The US labour market faces its densest data week of the month. JOLTS job openings land Tuesday (7.2 million expected), ADP on Wednesday (70,000 expected), initial claims on Thursday and the September non-farm payrolls on Friday (100,000 expected, down from 162,000). Markets price a 64%-70% chance of another quarter-point Fed hike on October 28. The dollar index sits at 100.77 and the S&P 500 at 7,729.8.

Author Mitrade

Sep 28, Mon

The US labour market faces its densest data week of the month. JOLTS job openings land Tuesday (7.2 million expected), ADP on Wednesday (70,000 expected), initial claims on Thursday and the September non-farm payrolls on Friday (100,000 expected, down from 162,000). Markets price a 64%-70% chance of another quarter-point Fed hike on October 28. The dollar index sits at 100.77 and the S&P 500 at 7,729.8.

Nvidia's $150 billion buyback landed — and the AI sector fell anyway. That's the signal worth trading Nvidia closed up 1.68% at $228.86 on 28 September after announcing a $150 billion share repurchase authorisation, the largest single corporate buyback on record, while the rest of the AI complex sold off: AMD -3.6%, Micron -2.6%, Meta -4.8% and the Philadelphia Semiconductor Index -1.61%. The divergence is not noise. Capital is rotating toward cash-flow certainty, not abandoning the AI theme. With Micron reporting after the close on 30 September, here is what the split means.

Author Irene Q.

20 hours ago

Nvidia closed up 1.68% at $228.86 on 28 September after announcing a $150 billion share repurchase authorisation, the largest single corporate buyback on record, while the rest of the AI complex sold off: AMD -3.6%, Micron -2.6%, Meta -4.8% and the Philadelphia Semiconductor Index -1.61%. The divergence is not noise. Capital is rotating toward cash-flow certainty, not abandoning the AI theme. With Micron reporting after the close on 30 September, here is what the split means.

The 30-year Treasury just hit a 22-year high — and the bond market is not pricing the Fed, it is pricing the deficit The 30-year Treasury yield closed at 5.56% on 28 September, the highest since June 2004, while the 10-year reached 5.24% and the 20-year 5.60%. The curve has steepened roughly 30bp in eight sessions even as October hike odds sit at 70.3%. That gap is the story: the long end is repricing fiscal and inflation risk, not policy. With PCE on Wednesday and payrolls on Friday, here is what the long end is really saying.

Author Irene Q.

20 hours ago

The 30-year Treasury yield closed at 5.56% on 28 September, the highest since June 2004, while the 10-year reached 5.24% and the 20-year 5.60%. The curve has steepened roughly 30bp in eight sessions even as October hike odds sit at 70.3%. That gap is the story: the long end is repricing fiscal and inflation risk, not policy. With PCE on Wednesday and payrolls on Friday, here is what the long end is really saying.

Popular Symbols