Cryptocurrency is an asset class like no other. As a result, some of the arguments against it are unique. Here we list some of the main reasons why you might decide not to invest in it.
Cryptocurrency is not for the faint-hearted and is notorious for its volatility. Its price can crash as quickly as it can shoot up. In March 2020, Bitcoin lost half its value in just two days as the global pandemic caused a mass sell-off in the crypto market. By investing in cryptocurrency, you are taking the risk of losing all your money. It’s sensible to start small with your cryptocurrency investments.
One of the most significant downsides to decentralisation is that, unlike traditional banks, there’s no centralised body that provides consumer protection. If you lose money through exchanges going bust, getting scammed, or your wallet getting hacked, then unlucky; there’s no legislation to protect you!
Pending regulation against cryptocurrency is often just shrugged off as ‘FUD’ (fear, uncertainty, doubt) in the crypto world. Nobody knows what the future holds for regulation in the sector. Some believe that sovereign states will soon embrace cryptocurrency, while others believe that central banks and governments will weaken or ban cryptocurrency.
Pump-and-dumps involve a user buying a large amount of a cryptocurrency with little trading volume before promoting it (usually on online platforms such as Telegram, Reddit, and Discord) in the hope that others will jump on board, thus ‘pumping’ the price up. The scam artist will then sell their coins at a highly inflated price, causing the ‘dump’, leaving behind a trail of investors nursing steep or total losses. Before buying any coin, check its history and the background of its founders/team (avoid anything anonymous), ask yourself if the promoter is trustworthy and don’t buy coins with a relatively low trading volume.
As the popularity of cryptocurrency has risen, as has the number of cryptocurrency scam victims. Over half of the money lost in investment scams by those aged 20-39 comes from cryptocurrency scams.
Here are some of the most common scams:
Social media scams frequently involve scammers creating advertisements indicating crypto to be an easy route to financial independence, or scammers directly messaging targeted victims stating that they (the scammer) are using crypto mining rigs to provide instant returns.
Impersonation/imposter scams feature the scammer posing as a reliable and trustworthy source to lure victims into sending them cryptocurrency.
Investment/business opportunity scams usually start with an unasked-for opportunity to become a cryptocurrency investor and thus quickly become financially independent.
Blackmail scams involve a form of communication claiming that confidential or personal information about you will be released unless you meet their payment demands (in cryptocurrency).
Below is a table of the top ten cryptocurrencies during the crypto bull market of 2013 (by market cap), compared to their current rank (October 2023).
The message here is that out of the ten, only two remain in today’s top ten cryptocurrencies (Bitcoin and Ripple). Many coins are simply not useful, meaning they’ll likely fade after the hype. Unless you truly believe in a coin’s long-term value, it’s sensible not to hold a cryptocurrency for too long, whether that be at a profit or a loss.
This one’s aimed at you, Bitcoin. In recent years, the world has woken up to the immediate action needed to combat environmental issues. Investors increasingly wish to channel their funds towards assets that help create positive change. Unfortunately for Bitcoin, the scientific community has pretty much unanimously declared it to be environmentally disastrous, though Bitcoin advocates would beg to differ.
According to the University of Cambridge’s Bitcoin Electricity Index, Bitcoin’s current* annualised energy consumption is 100 TWh - an annualised measure of the current electricity demand of Bitcoin miners. This is how Bitcoins annualised energy consumption compares to the total energy consumption of countries:
*accurate as of 25th October 2023
Part of the issue lies in where Bitcoin is mined. As much as 75% of Bitcoin mining used to occur in China, where coal, a dirty fossil fuel, makes up 58% of total energy consumption. China’s cheap coal-fuelled power used to make for the most profitable Bitcoin mining. However, China has since outright banned Bitcoin mining before a later ban on all crypto activity. The chart below from the Cambridge group shows the current state of play in Bitcoin mining following China’s ban.
Has China’s action solved the environmental problem? Not really, no. The mining has shifted elsewhere, often to other countries with cheap coal-fuelled power. For example, Kazakhstan, which generates over 70% of its electricity using coal, has seen a doubling in Bitcoin mining since China implemented its ban on Crypto mining.
Bitcoiners would argue that some mining comes from clean hydroelectric power, 75% of miners use renewable energy in some form, and 40% of the total Bitcoin network is powered by renewable energy.
(Source: 3rd Global Cryptoasset Benchmarking Study)
In addition, Bitcoiners such as Jack Dorsey (Former CEO of Twitter) and Cathie Wood (CEO of Ark Invest) argue that the Bitcoin network has the potential to increase the incentive to move to renewable energy as ‘wasted’ (and cheap) renewably sourced energy could be used to mine Bitcoin.
Many investors nowadays like to invest with "ESG" in mind. A Bitcoin is only worth as much as somebody else is willing to pay, and its value could be negatively impacted by enough people being turned off by its carbon footprint.
THE ARGUMENTS AGAINST CRYPTOCURRENCY. COMPLETED. ✅
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