Risks and Rewards of Bitcoin

by Farheen Shaikh  |  April 30, 2021

India is the second biggest Bitcoin nation in Asia.

We are actively participating in the cryptocurrency market. We are curious to learn about this new age asset class, and more importantly, there is a wholehearted acceptance of Bitcoin in India. Ever since the Supreme Court retracted the ban on cryptocurrencies, the trading volumes of Indian exchanges have multiplied and continue to grow.

So when we are so into this new financial instrument called Bitcoin, let’s dive deep and learn some essential aspects of it.

Top Risks and Rewards of Bitcoin Investing

Every investment is tied to some level of risks and rewards, and Bitcoin is no different. 

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Risks with Bitcoin Investment

Let’s hop in and look at some risks associated with Bitcoin.

1.  Volatile

Cryptocurrencies as an asset class are incredibly volatile, just like stocks, sometimes more. But volatility is also what makes them the most attractive asset.

A highly volatile asset is anything that has the potential to move considerably in value in either direction. When the movement is positive, you seem to make money, but you seem to lose when it is negative.

So as much as it is a risk to invest in a volatile asset like Bitcoin, it can be equally rewarding if not more.

2. Under-regulated Yet 

Bitcoin comes under the broader umbrella of Cryptocurrencies, and, indeed, the market is yet under-regulated.

But you must also factor in that it is built on a revolutionary technology like blockchain. By nature, its functioning and operations are quite technical and tricky, to say the least. This means it is not easy for governments worldwide to define a set framework for their operations.

Nobody has complete control over this technology, and it becomes a challenge for the governments to monitor something they don’t have control over.

So will it forever stay under-regulated? I don’t think so. 

Respective government authorities are exploring ways and means by which they can fully regulate this cutting edge technology and bring in a financial revolution. India, too, is in the process of exploring the adoption of cryptocurrencies in the country.

3. It Is A Software (Sort off & Software can have bugs) 

Bitcoin is essentially a programmed digital currency. It is a set of codes that operate on the internet, and there’s no denying that there is a possibility of bugs in the programme.

However, you must know, Bitcoin is open source and has some of the best developers and miners that help keep it secure. The developers on the Bitcoin network work tirelessly to enhance its functionality. And Miners are responsible for authenticating transactions on the network to maintain transparency.

4. Cyber Theft:

Bitcoin is protected with cryptography; every user has a public and a private key to ensure only an authorised user can access the cryptocurrency. 

However, being a digital asset, Bitcoin is at the risk of getting stolen by hackers. But such instances can be completely avoided if you are diligently taking all the required safety measures like not sharing your OTP’s and Mobile app password with other people, keeping your private keys to yourself and not sharing access to your hardware and software wallets through any means.

Rewards in Bitcoin Investment

Now that we have covered some of the risks involved in Bitcoin let’s also catch up on the rewards that it holds.

1. Asymmetric Returns:

The relationship between the risk and reward in Bitcoin is asymmetric. In simpler words, Bitcoin has the potential to give you a much higher return as compared to the level of risk you take.

For e.g., Over the last three months, Bitcoin has grown nearly 61%; it was valued at close to $30,786 in the first week of Jan 2021 and is now soaring near $52,666. Whereas in the same period it has not experienced a drop of more than 15% at a time

So if you see the risks to return ratio here is quite favourable.

2. No One Can Control It or Seize It:

Have you ever thought about what will happen if the bank you put your money in shuts down one day? All of your money will be seized; you will no longer be able to access them until things are sorted.

Thanks to Bitcoin, it is decentralised, and no one person or authority has control over its operations. This means no one can just come and say that you can’t access your funds.

You are in total control of your money; you can access it anytime, anywhere with a mobile and an internet connection.

3. Superior Store of Value (SOV):

Something can be a good store of value only if it retains and increases in value over time.

For E.g. Real Estate, at the time of purchase, is valued a certain amount and over time not only retains but increases in value. So real estate can be considered a store of value.

Similarly, Bitcoin is also a store of value. Its features like highly profitable (Volatility and Asymmetric Returns) and scarcity have helped it not only retain but exponentially multiply in value. Over the last year alone, Bitcoin grew 800%, so if you haven’t already dipped your toes into Bitcoin, you may want to rethink your decision!

Bottom Line

Over the last year, Bitcoin has turned out to be the most sought after asset from the bouquet of cryptocurrencies. It has had its ups and downs but continues to shine through. 

With so many people being invested in it and a ton looking forward to embracing it, I tried my best to call out the risks and rewards involved in making a choice. Now that the ball is in your court, Happy Investing!

P.S. KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. 


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