Recently, the virtual banking currency of the internet known as Bitcoin has garnered a lot of attention. Though it has been around for some time, it has only become an instant success among the investors in the recent time. Since cryptocurrency, a digital currency operating outside of a central bank has shot up in value, many people started wondering if investing in Bitcoin would reap them a lot of money. However, before plunging your money into Bitcoin, you need to understand whether you’re playing a safe move. Bitcoin investment and actual investment are far different from each other. Before making an investment, you need to understand what it really means to invest in Bitcoin.
Understanding Bitcoins Investment
When a single Bitcoin’s trading value shot up and became a regular fixture in the news, investors started taking it a tad more seriously. They started wondering whether bitcoins investment could outdo actual investment. The current value of Bitcoin is $11,060 and it keeps on fluctuating on a regular basis. Bitcoins investment is a far cry from an actual investment. Here’s what you need to understand about Bitcoin. An investment or business, no matter how big or small it is, requires your influence. If you’re not able to have an influence on your investment, then it cannot be called as an investment. If you’re not able to bring a change in your investment with your influential power, then it’s no longer an investment. That’s what Bitcoin is all about. You cannot have your control on this kind of investment.
According to Barry Silbert, the CEO of Digital Currency Group, Bitcoin is an investment offering highest risk as well as highest return.
The reason why Bitcoin has been referred to as an investment with the highest risk because its value fluctuates for about 30% on a daily basis. If the rate of an investment regularly fluctuates to this extent then consider it is not a safe mode of investment and cannot promise long-term benefits in future.
In 2014, Warren Buffet, an American business tycoon and also serving as the chairman and CEO of Berkshire Hathaway, released a strong statement about Bitcoin and said, ‘It’s a mirage. The idea it has some huge intrinsic value is just a joke.’ He also went on to say that people are not buying into the value of substance. Instead, they are buying into the value of hype. The more the hype about Bitcoin has been circulating, the more people are investing in it. People have no idea how Bitcoin really works. They’re just blindly following the hype built around Bitcoin and deciding to invest in it. Even the Vice Chairman of Berkshire Hathaway, Charlie Munger warns people to avoid Bitcoin just like you would avoid a plague. Bitcoin is spreading like a disease, which will take people on its hold and eventually take all of them down with it.
Bitcoin – a Virtual Investment
Initially, Bitcoin started off as a medium of exchange but soon it became a mode of investment – a virtual investment. A virtual investment is nothing similar to actual investment. Since bitcoin is a virtual investment, there is no calculation and predictability behind its growth and slump. Due to the absence of these two factors, making an investment in Bitcoin seems unsafe. Benjamin Graham, who is famously known as the father of value investing, gave out a statement about cryptocurrencies a long time back. He said that the long-term value proposition for a cryptocurrency does not exist. Therefore, it can come down easily, causing severe loss to the investors.
Who Should Invest in Bitcoin?
We aren’t discouraging people from making a Bitcoins investment. Bitcoins investment is good for people who have a large amount of personal disposable income. It means that if you have extra, surplus amount of funds then you can buy Bitcoins because they have the tendency to go upwards and also fall downwards really quickly. As it has lower predictability factor, then you cannot think of withdrawing funds out of Bitcoin. If you want to withdraw out of Bitcoin after a year, then it can be slightly difficult. Therefore, if you have a surplus amount of funds then you should go for Bitcoins investment.
Difference Between Virtual and Actual Investment
Bitcoin is referred to as a virtual investment whereas actual investment includes your debt fund, equity fund, gold, shares, property, FD, PPF, etc.
Actual investment is somewhat lazy and slow but is predictable. On the other hand, virtual investment is quite fast, volatile and highly unpredictable. One can actually plan, calculate and predict after making an actual investment whereas virtual investment is close to gambling. You can make an actual investment in the long run if you want to save something for your children’s future because it’s highly dependable. However, you can neither plan a virtual investment nor depend on it since its value fluctuates up to a higher percentage on a daily basis. Its value might come down to zero as well. We aren’t saying this will happen but it might happen.
Bitcoin is relatively a new concept; thus, it has a limited track record and comes with low credibility. As of actual investment, it’s an old concept which is quite stable. It has got a higher credibility rate and has a detailed track record attached to it.
As far as tax benefit is concerned, you cannot get any tax benefit before or after making an investment in Bitcoin whereas an investor can enjoy tax benefit before and after making an actual investment. They get a return on actual investment which is also tax-free. Even equity-based investments give you tax-free returns. Another noteworthy point is that since Bitcoin is not backed by any central bank, the government plays no role in saving you from the Bitcoin investment in case you face a loss in it. Moreover, you also lack sovereign support. The government discourages virtual investment because Bitcoin is being used in the black market, money laundering, illegal and tax evasion activities. This mode of investment is also being used by hackers and terrorists. It helps those who want to get away from paying taxes to the government and who only want to gain self-benefit. Since actual investment is backed by the government, it is thoroughly regulated and monitored by the authority. Actual investment is also encouraged by the government because it not only benefits the investors but also benefits them.
Risk Factor in Bitcoin
As discussed earlier in the post, Bitcoin is a virtual investment having the highest risk factor. Suppose a hacker logs into your account and hacks your Bitcoin, you cannot do anything to stop them since there is no third-party involved in this mode of investment. On the other hand, when your bank account, credit or debit card gets stolen, you can reach out to your bank that acts as the third-party and seeks their support. If your funds are accidentally transferred to someone else’s account, the bank can reverse the transfer. But this is not what happens when you’re dealing with cryptocurrency. Once the amount is transferred to someone else’s account, it cannot be reversed unless the person himself transfers the amount back to you.
Bitcoin investment is subject to cyber-attacks. Many cyber attack incidents have taken place in the past where hackers have stolen the cryptocurrencies from users’ accounts.
Bitcoins do not have any federal insurance, thus they cannot be insured, unlike the actual investments.
Which Investment is Better? Bitcoin or Actual?
As far as we have discussed, we have come to understand that bitcoins investment is a total blind game. The day the value of Bitcoin comes down to the lowest value, it will be difficult for you to cash out of Bitcoin. At that time, no investor would be willing to buy the Bitcoin from you. Actual investment has no such cash out risks. No matter how low the value of your actual investment becomes, you will still be able to sell it to someone even if you’re getting a low profit.
Smart people will only invest their money is something which is non-volatile and safe. They will invest their funds in their business to achieve growth in future. All the world’s leading businessmen and entrepreneurs have not become successful by making an investment in Bitcoin. In fact, they’ve investment funds in their business and achieved success with time. Therefore, it is advisable to invest in your business as well as your brains. A safe investment is much better than a blind investment.