Image Source

Cryptocurrencies such as Bitcoin, Ethereum, and Ripple have been making headlines recently. They are the latest investment craze – a new digital asset that can be bought and sold for profit. Despite the popularity, many veteran investors have been keeping their distance. What is about Bitcoin that is putting them off. Here are just four reasons.

It’s not a currency, it’s not a commodity… what is it?

Few people have a true understanding of what Bitcoin is. Designed as a digital currency to make international trading easier and prevent the need for currency transfer fees, Bitcoin could be viewed as a currency. However, it doesn’t follow a lot of the rules of what constitutes a currency – it doesn’t belong to a governing body and you can’t print off notes. At the same time, it’s not really a commodity, although often described as one. The likes of oil, gold, and silver all physically exist, but bitcoin is just a load of digital numbers. Without fully understanding what it is, many old skool investors are put off. Because it’s not affected by real-world events, it’s also difficult to predict its value. Political events can cause a currency to change in value, whilst supply and demand can affect commodity prices. Bitcoin isn’t affected by any of this making it more of a gamble than an investment for many veteran investors.

Prices are extremely volatile

Bitcoin witnessed a huge rise in value last year, but then suddenly before Christmas, it plummeted. Few modern investments these days see such as a dramatic crash. This might be ok if you’re only investing a tiny amount, but if you’re looking to invest a large amount of money as many experienced investors are, Bitcoin is too much of a risk. Traditional investment strategies such as using covered calls may have their complexities, but the risk is low, making them a much more preferable method. Besides, you can now download a free covered call screener to better get your head around these investments. The likes of Bitcoin are too new to be effectively screened.

There’s a risk of fraud

The creators behind Bitcoin have tried to put in measures to stop people acting fraudulently. Only a certain amount of Bitcoin can exist at one time and there are rules over how many accounts you can own. However, there have still been cases of people hacking the system and stealing millions of dollars worth of Bitcoin. This is a concern to many old-school investors, especially as such a crime can be hard to detect.

It’s unregulated

The final reason many experienced investors don’t like Bitcoin is due to it being unregulated. Most other commodities must be traded through an official trading company. When it comes to Bitcoin, there is a lot of it being without any regulation in place. This makes it easier to buy Bitcoin of a fraudster and get ripped off.