There are not many assets that outperform Bitcoin (CRYPTO: BTC). In the last five years, it has soared more than 1,100% (as of April 23). This far exceeded the Nasdaq Composite index, for example.

To be clear, I am still optimistic about the main cryptocurrency. Even at its current price of around $66,700, which is 10% below its peak, it looks like a smart buying opportunity.

However, I believe it is always a good idea for investors to understand the downside of any asset they own or are considering.

Government intervention

The most obvious thing that could put a bearish headwind in the path of this booming crypto would be for governments to implement strict regulatory measures around it. Countries could make it illegal for their citizens to purchase Bitcoin, or for anyone to mine Bitcoin within their borders – effectively banning it. This is exactly what China did.

If the US were to ever follow a similar approach, it would mean that the richest country on the planet would be excluding itself and its citizens and businesses from legally supporting Bitcoin. This could crush the price of crypto by divesting a huge pool of capital.

But why would governments want to ban Bitcoin? Bitcoin is a direct competitor to central banks around the world. These entities control benchmark interest rates and fiscal policy, which largely means they control their countries’ money supply. As a decentralized monetary network that transcends borders, Bitcoin can undermine this power.

However, the recent approval by the Securities and Exchange Commission Bitcoin exchange-traded funds with spot pricing (ETFs) in the US may reveal a more favorable regulatory position, both from Washington and Wall Street.

Technical uncertainty

We also cannot ignore the technical risks. Bitcoin has been around for about 15 years, but blockchain technology is still an innovation. We don’t know what changes the developers have in store for the Bitcoin network, which leaves a lot of uncertainty about what it might look like in 15 years. These changes could have consequences for the stability and reliability of Bitcoin in general.

Admittedly, Bitcoin’s software is intentionally simple and the system is designed so that the majority of nodes need to approve any proposed changes. If there is any risk that an update could break something, the hope is that such a change will be rejected. However, there is always a chance that a problem can be resolved.

Another factor that adds technical uncertainty is the potential of quantum computing. Several companies and research groups are developing new supercomputers that take advantage of quantum mechanics to solve certain types of extremely complex problems, much faster than traditional machines. Some of these problems – in cryptography, for example – are seen as more or less insoluble by standard computers in any useful period of time. Alphabet It is Microsoft are among the main companies working on this technology.

The story continues

If the technical challenges of quantum computing can be overcome, these machines will likely be able to break the Bitcoin network’s encryption, destroying its security features. Everyone’s private keys – and their Bitcoins – would be at greater risk of being stolen. And if the public loses confidence in the security of Bitcoin as an asset, its value will be in trouble.

To put a positive spin on this scenario, developers could also use quantum computing to develop a new and improved security mechanism for cryptography. In other words, Bitcoin could adapt.

Losing interest

Another risk I see is that it has gone unnoticed in the investment world so far. There is always the possibility that people will simply lose interest in Bitcoin over time. Many individual and institutional investors, as well as companies and governments, have gravitated toward the asset over the past decade. But that was mainly due to the fact that its price continued to rise, despite a lot of volatility along the way.

I suspect that if Bitcoin doesn’t continue to satisfy its owners’ desires for quick gains, then over time money could flow out of crypto and back into traditional asset classes like stocks and real estate. Such outflows would further depress prices and disappointing results would discourage new investors from purchasing Bitcoin.

The counterpoint to this thesis is that, over the last 15 years, Bitcoin has remained relevant. The longer it lasts, the more I believe it’s not going anywhere.

Even after weighing these compelling bearish arguments, I would argue that Bitcoin bulls should have even more conviction.

Should you invest $1,000 in Bitcoin right now?

Before buying Bitcoin shares, consider the following:

The Motley Fool Stock Advisor analyst team just identified what they believe is the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $537,557!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular analyst updates, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 actions »

*Stock Advisor returns April 22, 2024

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Neil Patel and its clients do not have a position in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet, Bitcoin and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The motley fool has a disclosure policy.

This phenomenal crypto has skyrocketed 1,100% in the last 5 years. Here’s the Bear Case You Need to Understand was originally published by The Motley Fool

Fuente