You’re probably wondering “is Bitcoin a good long-term investment?” We will leave you to answer that question, but we will outline some key points to consider. Each day, Bitcoin is gaining more and more main stream users. More stores are accepting Bitcoin, more people are mining, and more people are trading. This is helping Bitcoin become a legitimate currency. As the currency builds a following, it should continue to stabilize and become more widely accepted.
On the other hand, Bitcoin could be outlawed and destroyed by interventions from central banks and governments. Would a government resort to such drastic measures? The American government already took action against the last popular alternative currency, e-gold, which was tied to gold held in private reserves and at its peak had five million users. The government shut the currency down for not having the right licenses to operate, and believed it could be used by terrorists and other criminal figures to transfer funds.
Bitcoin could threaten the status quo or may become tied up in the criminal underworld. Indeed, challenging the status quo is exactly what the currency is meant to do. At this point in time, however, Bitcoin is still a small currency and as such, it is highly vulnerable to attacks. Consider this, the United States government could decide that Bitcoin is a threat and decide to take action against it. The U.S. government could simply outlaw the currency, but that might generate too much bad press, and who knows demand in other countries might keep it alive.
A simpler solution for the government, however, would be to have the U.S. Fed print up a few billion dollars in new dollars and use it to purchase Bitcoins. Prices would immediately skyrocket. Next, the government could dump their Bitcoins into the market, sending prices spiraling back downwards. If the rise and fall were dramatic enough, it could potentially destroy Bitcoin.
But wait a minute, couldn’t the Bitcoin community merely prove that the currency was subject to adverse action and restore confidence in it? It’s possible, but owing to the high anonymity of Bitcoin, a government or central bank may be able to cover its tracks. Of course, whether or not a government would actually take such drastic actions is unknown and highly-speculative.
On the other hand, investing is all about speculation and uncertainty. There are a lot of unknowns in Bitcoin. Security attacks, scams, mining problems, and numerous other issues could derail the currency. Of course, increased demand, widespread acceptance, and the need for an anonymous currency could all send Bitcoin’s value skyrocket. It’s up to you, as an investor, to determine which direction Bitcoin is moving in.
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