A Bitcoin investment isn’t just subject to market volatility; it’s also vulnerable to some serious outside threats that could wipe out large amounts of value overnight—or even your entire portfolio.
Here are some examples to keep in mind while considering a Bitcoin investment:
Hacks, scams, and theft
Hackers and scammers stole a record $14 billion worth of crypto in 2021, according to CNBC, which is a 79% rise from 2020 levels. Mt. Gox was handling 70% of the world’s Bitcoin transactions when it was hacked in 2014—and 650,000 bitcoins have never been returned to their rightful owners.
Now, you can safeguard your crypto from hackers by storing your private keys in a cold crypto wallet, which unlike a hot crypto wallet lives entirely offline.
However, using a cold wallet introduces a whole new form of risk:
Losing Your Cold Wallet
What do a USB stick, hard drive, or even a scrap of paper have in common?
They can all be lost.
Just ask James Howell, who accidentally threw away the wrong hard drive in 2013 and has been searching for it in a landfill ever since. And who can blame him for getting his hands dirty and not giving up? There’s 7,500 BTC on that hard drive now worth more than $277 million.
In total, 20% of Bitcoins are lost due to misplaced or forgotten private keys.
Increased regulation doesn’t just threaten the portfolio of traders within that country’s borders, it can send global prices tumbling.
India tried enacting anti-crypto legislation in 2018, but in 2020, the Supreme Court struck it down. This led Indian investors to “pile into the market,” according to Reuters, only for a new proposed ban to surface in 2021—one that “officials are confident in getting enacted into law.”
Russia’s central bank has also proposed a ban on crypto activity in 2022, and when China published plans for a renewed crackdown in May of 2021, Bitcoin fell $10,000 or ~25% in a matter of days.
In addition to regulatory nooses tightening, Bitcoin seems especially vulnerable to bad press. With such a speculative asset it’s hard to pinpoint exactly what’s causing the crypto crash of 2022. But what’s unfolding in El Salvador certainly isn’t helping investor perception.
In September 2021, El Salvador officially adopted Bitcoin as a second legal currency behind the USD. But El Salvador’s Bitcoin rollout “is tanking the economy—and is a mess by every measure” writes Shawn Tully in Fortune. As of the time of writing, citizens are lining up to ditch their Bitcoin before prices fall any further, and the International Monetary Fund has officially urged President Bukele to back off.
Judging by this week’s stagnant prices, one could assess that these two opposing forces—the media shredding Bitcoin and President Bukele refusing to back down—could be evening out investor perception.
But when one exists without the other, the cryptocurrency market can plummet. When Tesla announced they’d no longer accept Bitcoin, for example, values tumbled by 12%.
Mark Zuckerberg thinks we’ll all be in the metaverse within the next five to ten years. And while investors are already seeing vast opportunities in virtual real estate and NFTs, the one asset that doesn’t seem to have a place waiting in the metaverse is Bitcoin.
Ethereum powers NFTs. Cardano uses proof-of-stake to make smart contracts more eco-friendly. Companies like Meta, Walmart, and others are developing their own proprietary stablecoins to use as stores of value.
So where does that leave Bitcoin?
With high power consumption and limited practical uses, it appears that Bitcoin might be too old-fashioned for the metaverse. And as more investors realize this, they might start converting their BTC to more future-proof cryptos.