Top Risks of Bitcoin
Posted on 11/29/2020
Investors have a renewed interest in digital currencies, which includes Bitcoin. From March 2020 low of US$ 4,900, Bitcoin rose almost 300% by November 2020. Hedge funds, retail investors, and speculators have been attracted to the digital currency. From all the cryptocurrencies introduced, Bitcoin is considered the most trending and successful currency versus other virtual currencies and tokens. Proponents of Bitcoin view it as digital gold.
Central banks have been working on digital currencies, while tech companies like Facebook and payments company Square have made commitments to the cryptocurrency arena. In October 2020, Square purchased 4,709 bitcoins, worth approximately US$ 50 million, about 1% of Square’s total assets. PayPal announced a few weeks later that it had enabled crypto transactions for all its clients. Some key characteristics of currencies include a store of value and a medium of exchange. More public companies are even using more of their liquid cash to hold some assets in cryptocurrencies.
Guggenheim Partners, a major fixed income investor, filed an SEC amendment to allocate over US$ 500 million from Guggenheim Macro Opportunities Fund to Grayscale Bitcoin Trust (GBTC). GBTC is a publicly-traded Bitcoin investment vehicle from New York-based Grayscale Investments, LLC. “The Guggenheim Macro Opportunities Fund may seek investment exposure to bitcoin indirectly through investing up to 10% of its net asset value in Grayscale Bitcoin Trust (GBTC),” the filing reads. Guggenheim Macro Opportunities fund currently has US$ 5.3 billion in assets under management.
Barry E. Silbert is the CEO of Digital Currency Group, which owns Grayscale Investments.
Besides investment returns, here are the top risks of Bitcoin.
Top Risks of Bitcoin
9. Quality of Custodians and Coin Exchanges
8. Other Cryptocurrencies and Proliferation of Alt Coins
7. Value of the Underlying Asset (Online Asset)
6. Block Withholding
5. Limited Use as a Currency (Medium of Exchange)
4. Whale Investors (Loading and Unloading on the Bitcoin Market)
3. Volatility (Supply and Demand shocks)
2. Cybertheft and Hacking (Digital Wallets and Cryptocurrency Exchanges) –
1. Government Regulation
Security vs. Currency. Central bank regulation. Tax regulation. etc.
| PERIOD | Grayscale Bitcoin Trust – Assets under Management in USD | SPDR Gold Shares – Total Net Asset Value in the Trust in USD |
|---|---|---|
| 11/27/20 | 10,190,000,000 | 68,326,862,955 |
| 12/31/19 | 2,022,034,920 | 43,724,603,829 |
| 12/31/18 | 825,233,127 | 32,446,449,245 |
| 12/31/17 | 2,698,489,735 | 34,899,146,661 |
| 12/31/16 | 164,214,460 | 30,628,886,627 |
| 12/31/15 | 60,013,166 | 21,930,606,053 |
| 12/31/14 | 42,128,728 | 27,324,554,516 |
End dates are on 31st for SPDR Gold are the latest dates for that annual period.
SPDR Gold Shares: Inception Date 11-18-2004.