After Tesla revealed in an SEC filing on Monday that it has bought $1.5 billion worth of bitcoin, the price of the cryptocurrency hit a record high of over $44,000, giving it a market value of over $800 billion.
If you listen to bitcoin bulls, it’s just the beginning
“It’s probably going to $100,000, then $150,000, then $200,000,” Chamath Palihapitiya, founder and CEO of Social Capital, told CNBC’s “Halftime Report” on Thursday. “In what period? I don’t know. [Maybe] five or 10 years, but it’s going there.”
With all the hype, many people are wondering if they should invest in bitcoin. But the cryptocurrency also creates a wide array of concerns: Some worry that bitcoin is a bubble, too risky to invest in or susceptible to fraud, to name a few.
CNBC Make It spoke to bitcoin and fintech experts about the common concerns surrounding the cryptocurrency.
Is bitcoin too risky for the average investor?
Compared to most investments, bitcoin “is a highly volatile, highly risky investment,” James Ledbetter, editor of fintech newsletter FIN and CNBC contributor, tells CNBC Make It. “If you look historically at the price of bitcoin, there have been a number of occasions where it’s really spiked and then comes crashing down really quickly.”
(For example, after rallying to nearly $20,000 in 2017, bitcoin’s price collapsed and lost a third of its value in a single day, and in 2018, it dropped to as low as $3,122, wiping out billions of dollars from the total cryptocurrency market value.)
While that can mean big returns, it can also mean big losses.
That’s why some, like investor Mark Cuban, liken bitcoin to gambling and advise investing only as much money as you can afford to lose.
“You have to at least be mentally prepared and financially prepared that [a crash] could happen again. It could happen tomorrow,” Ledbetter says.
Of course, despite its high selling price, “you can go and buy as little as even $5 of bitcoin because there is the ability to buy fractional shares called satoshis,” points out Anthony Pompliano, co-founder of cryptocurrency hedge fund Morgan Creek Digital Assets and a bitcoin investor.
“Just start very small, do research, learn about it,” Pompliano says.
(If you do decide to invest, Pompliano supports holding bitcoin long-term. By design, there is a limited supply of bitcoin, so bitcoin bull Pompliano believes as demand increases, the price will as well.
Are bitcoin ‘wallets’ safe?
In July, a widespread Twitter hack compromised many celebrity accounts – including that of President-elect Joe Biden, former President Barack Obama and Tesla CEO Elon Musk, to name a few – in a bitcoin scam. As a result, hundreds of thousands of dollars in bitcoin had been transferred under false pretenses.
For many, this prompted questions around the safety of bitcoin.
“There have been multiple examples of bitcoin theft and fraud that I think would give pause to the average investor, particularly if you were going to invest a substantial amount. I think those are legitimate fears,” Ledbetter says. But he also finds them “overblown.”
While bitcoin allows for users to transact without revealing personal information or identity (potentially making fraud easier), it’s not totally anonymous. Each bitcoin transaction is documented on a digital ledger called the blockchain, where a user’s cryptocurrency “wallet” is represented as a unique series of random numbers and letters. Through this, a scammer could potentially be traced after the fact.
“I always remind people that bitcoin literally has a public ledger,” Pompliano says.
Plus, bitcoin is extremely hard to hack thanks to blockchain.
“To hack it, you would have to take over the network, and to take over the network, you would need your own network of computers running 24/7, and to do that, it would cost billions of dollars,” according to Paul Vigna, markets reporter at The Wall Street Journal.
Ledbetter also points out that a traditional stock account with a brokerage could be compromised too. “There’s always some potential for fraud or security risk.”
The safest bet is to use a trusted brokerage, experts say – “these established places have a good security protocol and a quick application to protect,” Ledbetter says.
All in all, “things happen,” he says, “but when you look at the big stories of theft, they tend to be institutional and kind of on the fringes.”
According to the Federal Trade Commission (FTC) website, cryptocurrency scams are “a popular way for scammers to trick people into sending money,” and most scams can “appear as emails trying to blackmail someone, online chain referral schemes, or bogus investment and business opportunities.”
“It’s not like there’s something intrinsically unsafe about bitcoin itself– it’s more how people are handling or managing it,” Ledbetter says.