There is fear of an eventual crypto bubble

One can definitely say that crypto is promising, but will this growth end up being a bubble? 

We have seen “bubbles” in the financial, housing, and tech industries. Just as the roaring twenties raced along, the

dot-com bubble burst

during the bull market in the late 1990s, and the housing bubble popped.

These bubbles burst eventually and made a lot of people poorer. 

Similar signs can be seen in the crypto markets these days.

China is clamping down on what is considered a burgeoning digital trading market. 

Under the ban, such institutions, including banks and online payments channels, must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement. 

Elon Musk’s Tesla has suspended vehicle purchases using Bitcoin due to climate change concerns. 

On the other hand, El Salvador becomes the first country to make bitcoin legal tender where

62 out of 84 members of congress have voted in favor of President Nayib Bukele’s proposal to embrace cryptocurrency.

Facebook plans to launch its own cryptocurrency ‘Diem’ as reported by The Financial Times in January 2021. 

The baffle is – what will happen to all these cryptocurrencies if there is a progressive outright crackdown by governments worldwide? 

Just how much is cryptocurrency really worth?

Here are some points of caution you need to keep in mind while investing or speculating in the crypto market.

#1: Bitcoin and other cryptocurrencies are being used for scams and fraud

The internet has opened up new ways for criminals to conduct scams and frauds. 

Up until now, it was somewhat difficult to scam someone without leaving a financial trail behind. 

Cryptocurrencies like Bitcoin have made it a lot easier for scammers to trick people out of their money. 

As such, governments and law enforcement will need to find a permanent solution to this problem sooner or later.

It is important to remember that the free market cannot dictate the legitimacy of a currency. The government decides the legality of a cryptocurrency.

 

#2: Governments and Banks do not support cryptocurrencies

Governments, banks, and other financial institutions do not support the use of cryptocurrency. Even for those who do, they could only accept those cryptocurrencies if they are legalized and taxed. 

We all know that cryptocurrencies are decentralized, secured by cryptography, and have high anonymity.

As such, there are many giant unanswered questions about cryptocurrencies. 

What is the long-term viability of these currencies as a legitimate method of storing and transferring wealth?

#3: Security vulnerabilities and infrastructure issues with crypto exchanges

Crypto exchanges don’t operate in a vacuum — they are representatives of the crypto community and technology. 

With that, there is a trust relationship between a crypto exchange and its users. The users expect that information will be secured, data will not be lost, and infrastructure will not fail. 

The recent attacks on multiple crypto exchanges have called this into question, and we should be able to ask ourselves – “Are the crypto exchanges we rely upon doing everything they can to eliminate or minimize these risks?”

#4: Governments are in the process of issuing their own digital currencies

Fiat currencies are the most common form of currency used throughout the world, and in recent years there have been several attempts to create digital currencies. 

But one thing that governments have been reluctant to do is to issue their own digital form of payment. 

That is about to change with governments increasingly turning their attention to issuing their own form of digital currency.

And when that happens – the decentralized cryptocurrencies will be competing with government issued digital currencies. One can make an easy guess who will win.

By and large

Information is power.

Bitcoin and other cryptocurrencies are hot, but they are also a way for scammers to rob you of your hard-earned money. 

There is a high risk that even an investment in cryptocurrencies which have been around for over ten years, could disappear overnight with no warning. 

 

Don’t just blindly invest in any coin!