Bitcoin prices have fluctuated a lot during this year, and in 2021 they reached approximately $65,000. But it did not maintain this rise for long, as it subsequently lost more than 47 percent of its value.
This fluctuation has affected the desire of large investors to adopt the currency because it represents a risk to their business and profits. Through the following article, we try to clarify five risks facing Bitcoin.
1. Government legislation against Bitcoin
Government regulation is one of Bitcoin’s biggest risks, and China has begun to clamp down on miners. This is done by closing large mining farms.
In addition, China has directed major banks and insurance companies not to deal with digital currencies. Then England followed suit, passing new laws preventing Binance from operating within its borders.
The clampdown by the Chinese government is harmful to the currency because it prevents Bitcoin miners from accumulating in China.
The United States is still struggling with the laws of cryptocurrencies, as many ministries are trying to establish laws for them, and this is what harms those dealing in digital currencies.
The US government has previously warned against dealing in digital currencies and the possibility of using them for suspicious activities.
The Trump government also previously tried to legalize the status of digital wallets, and demanded an investigation into those who own a wallet containing $3,000.
2. Big fluctuation
The currency’s prices varied greatly, rising to approximately $65,000 in April. It dropped to around 28,000 in June before rising again to 34,000.
Some analysts consider Bitcoin like gold because it provides relative safety in economic crises.
As for investors’ profits, they would have earned more than double their money if they bought Bitcoin before the beginning of 2021 and sold the currency before April.
The growth rate reached 18 percent, which is greater than the growth of the S&P 500 index, which reached 16 percent since the beginning of 2021.
While this price fluctuation will put off some investors, it will not stop large companies from investing in it.
Volatility may attract many people to invest in Bitcoin at high prices, as investing in large amounts also generates large profits.
3. Environmental risks
Bitcoin critics have warned of the environmental risks of mining and how it increases carbon consumption around the world. Because the Bitcoin (BTC) mining process consumes a lot of electricity.
The importance of this warning increased when Elon Musk spoke about it. Tesla surprised the world when it invested $1.5 billion in Bitcoin, and announced that it accepts payments through it.
However, Elon Musk stopped this decision due to environmental concerns about the currency and its large energy consumption.
One analyst believes that environmental concerns are preventing some companies from investing in Bitcoin, and may have prompted new government laws to prevent it.
4. Checking stablecoins
Stablecoins are currencies whose value is linked to physical resources such as the US dollar. The Governor of the Reserve Bank of Boston has stated that Tether poses a risk to the stability of the economic system.
Tether’s founders claim that it is backed 1:1 by the US dollar, meaning that each coin is worth $1. Therefore, traders prefer to use them to buy cryptocurrencies instead of real dollars.
Some analysts are concerned about the cash reserves of this currency and believe that the founders do not have anything to cover the demand for it.
The volume of financial transactions in the currency is more than $60 billion, which makes it larger than the cash reserves of some American banks.
5. Fraud operations in the world of cryptocurrencies
Some digital currencies are known as meme coins, which do not follow any logic and are not supported by companies.
Dogecoin is one of the most famous examples of it, as it started as a joke and then turned into one of the largest cryptocurrencies after Elon Musk supported it. The value of Dogecoin has increased to exceed the size of the American Ford Motor Company in 2021.
Digital fraud represents one of the biggest concerns this year because some currencies rise quickly and then disappear. The government cannot interfere significantly in its regulation.
Therefore, investors should be aware of these currencies, as they may cause large profits or greater losses.
