WHY IS BITCOIN NOT GOLD?

The first risk to be aware of is related to storing bitcoins. The intangible nature of the currency does not mean that it cannot be stolen. On the contrary, virtual reality is teeming with virtual thieves, i.e., hackers. When you buy cryptocurrency, your ownership rights are based on so-called keys – public and private – which allow you to receive and send money. The place where you store them is called a wallet. You can choose between app-based, browser-based, and offline wallets. Investors most often choose one of the first two options, which means that their keys are constantly connected to the Internet. Customers of the NiceHash portal learned about the dangers of this at the beginning of December, when bitcoins worth approximately $63 million disappeared from the exchange's servers within 24 hours. At the end of December, Marko Kobal, CEO and one of the company's founders, stepped down from his position.

There are also semi-offline wallets, i.e., hardware wallets. The downside is the high purchase cost and often long waiting times in the queue of buyers. Offline wallets, or paper wallets, are more like safes from which we can print banknotes. The above-mentioned solutions limit the possibilities of performing operations. It is also important to remember to secure access to this type of wallet.

The second serious threat that investors in Bitcoin must consider is the speculative bubble. Over the past twelve months, the price of Bitcoin has risen by over 1,600%. This fact disqualifies it as a currency, because how can you make everyday transactions with money whose value can change by 25% in a single day? Bitcoin also lacks other characteristics of a currency: it is neither a store of value nor a unit of account. Cryptocurrencies are therefore closer to the US real estate market of 2005 than to a real currency market. Particularly worrying is the fact that more and more people are buying bitcoins on credit. This is evidenced by a study conducted by LendEDU, an online credit marketplace. In December, the behavior of 672 active investors was analyzed, and it turned out that 18.15% of them made purchases using a credit card. Of these, 22.13% have not yet repaid their loans, and as many as 76.23% plan to make further purchases on credit.

The reason for this type of behavior is most often FOMO (Fear of Missing Out), i.e., the fear of missing out on something important—in this case, a large profit. Western experts point to an analogy with the situation that led to the financial crisis in 2007. At that time, almost every American wanted to own real estate, regardless of whether they could afford it or not. The prospect of easy profits tempted even those living on government benefits. In the end, families with an annual income of $30,000 were buying houses for $1 million. There is no need to remind anyone how that story ended.

Many well-known investors (including Ray Dalio and Marc Faber) warn that the biggest players in the Bitcoin market are risk-aware speculators looking for a way to quickly multiply their fortunes. When the bubble bursts, careless investors will lose their money irretrievably, and those who bought on credit will be left with debts. The danger is all the greater because the cryptocurrency market is not regulated by any state or financial institution.

In light of the above, it should be emphasized that bitcoin should not be compared to gold, which is a tangible means of investing capital. The real value of gold has remained stable for thousands of years because it is based on the laws of supply and demand. The gold market is not a place for speculation, but a safe haven for anyone seeking long-term asset protection. Investing in cryptocurrencies, on the other hand, is more like a risky game.