Is Bitcoin a risky investment? What’s the main problem with Cryptocurrency

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Bitcoin – and by extension cryptocurrency – has been a hot topic for over a decade. Since Bitcoin’s launch in 2009, the idea of digital money has garnered massive amounts of attention and adoption by various platforms. It is difficult to deny its impact on the world of finance and for the longest time, the pros outweigh the cons.

Nowadays, thanks to recent events, investors are becoming more aware of the disadvantages of Bitcoin and crypto in general. It is difficult to dismiss the issues when those same issues have been brought to the foreground and are hard to ignore. It is too soon to tell if these drawbacks will result in failure, but they will certainly leave a dent in Bitcoin’s reputable image. In fact, one could make the argument that the dent already exists.

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The question is not “what are the problems?” but rather “what is the main problem?”

Instability in price

Several disadvantages could be considered the central problem with cryptocurrency and Bitcoin. One is the fact that it is based on complex blockchain technology. This technology was launched into large-scale practice only a few years ago. Nowadays, experts in crypto and blockchain are so few in numbers that they can be counted on one hand. What’s more, these technologies are continuing to develop.

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Another notable shortcoming is Bitcoin’s infamous scalability problem. The Bitcoin network has a limited capacity to handle large amounts of transaction data on its platform within a short period. It connects to the fact that records (aka. “blocks”) in the Bitcoin blockchain are restricted in terms of frequency and size.

As troublesome as these disadvantages are, none of them come close to what many consider to be the main issue with Bitcoin and crypto. That being price volatility. Even the staunchest of crypto supporters will agree that this is a huge drawback with the technology. The price and value of Bitcoin can change significantly and without warning, leaving many to be wary about investing in it.

The key element in this disadvantage is the fact that Bitcoin is not asset-backed. Without the support of a stable asset, its price changes are unpredictable, thus making them a risky investment.

Asset-backed crypto

What better way to counteract crypto that is not backed by an asset than with asset-backed cryptocurrency? While there are other potential solutions to the volatility issue of Bitcoin, this is arguably the best one. Or, at the very least, it is the most practical.

With the surge of asset-backed tokens, investors suddenly have the perfect entry point to the world of crypto. Now they can experience cryptocurrency without the volatility that major tokens frequently experience.

The best part of asset-backed cryptos is the fact that they are directly tied to a tangible asset in the real world. With each passing day, these assets grow. However, the most popular of the bunch are those that are tied to gold, fiat currencies, real estate, and other commodities. Arguably the main draw of asset-backed tokens is that they experience less volatility than Bitcoin thanks to being backed by real-world assets.

The two most popular types of asset-backed crypto are “stable coins” and “gold-backed cryptocurrencies.” The former are coins that are highly resistant against price fluctuations and lack the instability of Bitcoin. The latter, as the name suggests, are digital currencies whose price is tied to the value of real-world gold.

Reliability through asset support

It is difficult to deny that price volatility is the primary hindrance of Bitcoin and cryptocurrency. Without an asset to back the digital currency, they are rendered unstable in their value. By investing in asset-backed crypto, there is a guarantee for stability, and it makes price fluctuations less erratic. Overall, they will serve as a transition to wider applications throughout the growth, development, and evolution of the crypto market.

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