3 reasons not to invest in Bitcoin

Not creating value over time, too unstable value and advice from the world's number 1 investor are things that players need to be careful about when deciding to invest in Bitcoin.

Cryptocurrencies are becoming more popular than ever, with the most famous representative being Bitcoin. Although there are still skeptics, many predict that this will be the currency of the future.

In many places, Bitcoin can also be used to trade goods and services online. In some cases, it can even be used for real-world use.

But the most common way to use Bitcoin today is to invest in it and sell it when its value increases. So the way some bullish investors talk about Bitcoin today is reminiscent of the early days of the dot-com era.

Like the dot-com bubble, Bitcoin and other cryptocurrencies represent the technology of the future, but no one can guarantee that this technology will be a smart investment. In addition, people cannot rule out the possibility that this is just a way for big investors to make money from small players.

Here are 3 reasons why players need to consider before investing in Bitcoin:

Warren Buffett declares Bitcoin worthless

Warren Buffet once caused a stir with the above statement. In a conversation with CNBC in 2014, Buffet affirmed: "Stay away from it. It's just a fantasy. It's simply a method of transferring money, an efficient way of transferring money that people can use to do anonymously. That's it. A card can transfer money, but it's not worth a lot of money. The idea that Bitcoin has some kind of tremendous intrinsic value is just a farce to me."

Warren Buffett claims Bitcoin is worthless and people should avoid investing in it. Photo: Omaha.

Of course, you can't stay away from Bitcoin just because Buffett doesn't like it. But when arguably the best investor in the world says it's worthless, you need to be careful before investing. What's special is that after Buffett made this statement, Bitcoin started its miraculous growth.

Buffett has long been criticized for not understanding internet stocks. But after the dot-com bubble burst in 2000 and never recovered, people hailed him as a genius.

Bitcoin does not create value over time

Bitcoin has been on a tear. By the end of November 2017, it was trading at over $10,000 per unit – a nearly 900% increase over the year. A currency that is considered worthless but requires a lot of money to own.

Bitcoin prices have skyrocketed this year. Photo: Coindesk.

This increase in price is not unusual for any asset, such as stocks. If a business wants to expand its operations, grow and generate profits over time, investors will not hesitate to pour money into buying its stocks.

But this is not how Bitcoin works. Bitcoin prices rise because people want to pay more for it, and investors buy Bitcoin because they want to sell it at a higher price. This is what is called the “greater fool” theory of investing.

Bitcoin has skyrocketed this year, but its first year of trading has seen even higher percentage gains. It launched in July 2010 at 9 cents, but just a year later it was worth $13.48 – a gain of nearly 14,900%.

Bitcoin price is unstable

Bitcoin is too volatile to become a common currency. Photo: Zmescience.

Bitcoin investors believe it will be the currency of the future, but its price is extremely unstable, making it impossible to become a current currency. In early November, Bitcoin's price rose to nearly $7,900, but just a few days later it fell more than 25% to below $6,000.

Then, in late November, Bitcoin surged past $10,000 again. This year alone, it has seen five drops of more than 20%.

Consumers need stable prices to make purchasing decisions. Imagine walking into McDonald’s and buying a meal for $10. The next day the meal is $5 and the day after that it is $20?

At that point, you should look elsewhere for lunch, and this McDonald's will probably need some more time to come up with a proper business strategy.

According to Zing