An In-Depth Examination
Cryptocurrency, once hailed as a revolutionary financial innovation, has become a subject of intense debate and scrutiny.
While it has created immense wealth for some, the downsides of this digital asset class have increasingly come to the forefront.
From environmental concerns to its role in illicit activities, and the volatility that has left many investors in financial ruin, the risks associated with cryptocurrency are becoming more apparent.
This article delves into why cryptocurrency is often considered a bad investment and a risky venture, supported by examples, data, and real-world facts up to 2024.
Contents
1. Environmental Impact
One of the most significant criticisms of cryptocurrencies, particularly Bitcoin, is their environmental impact.
The process of mining Bitcoin, which involves solving complex mathematical puzzles to validate transactions on the blockchain, consumes enormous amounts of energy.
According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), Bitcoin mining consumed approximately 89 terawatt-hours (TWh) of electricity in 2022—almost reach the level of the entire country of Norway which is 122.20 TWh.
By 2024, despite some efforts to make mining more sustainable, Bitcoin’s energy consumption remains a major concern.
A report from the University of Cambridge in early 2024 highlighted that even with the shift towards renewable energy sources, the carbon footprint of Bitcoin mining was still significant, contributing to climate change and exacerbating global environmental challenges.
2. Volatility and Investor Risk
Cryptocurrencies are notorious for their extreme volatility.
While some investors have reaped massive profits, many others have suffered devastating losses.
Bitcoin, for example, saw its price soar to nearly $69,000 in November 2021, only to plummet to around $16,000 by November 2022.
This volatility makes cryptocurrencies an unreliable store of value and a risky investment.
In 2023, the cryptocurrency market continued to exhibit wild swings.
For instance, in March 2023, Bitcoin’s price briefly spiked to $26,000 due to the approval of a Bitcoin spot ETF, only to crash back down to $20,000 within weeks due to macroeconomic pressures and regulatory crackdowns.
Such volatility is not just limited to Bitcoin but extends to other cryptocurrencies like Ethereum, Solana, and meme coins such as Dogecoin and Shiba Inu.
This unpredictability has led to financial losses for countless retail investors who entered the market hoping for quick profits.
3. Regulatory and Legal Challenges
Cryptocurrencies operate in a legal gray area in many parts of the world, leading to regulatory uncertainty.
Governments and financial regulators are increasingly concerned about the use of cryptocurrencies for illicit activities, such as money laundering, tax evasion, and financing terrorism.
In 2024, the U.S. Securities and Exchange Commission (SEC) intensified its crackdown on unregistered securities offerings in the crypto space.
Major exchanges like Binance and Coinbase faced significant legal battles, with allegations ranging from operating without proper licenses to facilitating the trade of unregistered securities.
The result was a wave of fear and uncertainty across the market, leading to sharp declines in the prices of many digital assets.
Moreover, countries like China have outright banned cryptocurrency trading and mining, while others, like India, have imposed heavy taxes on crypto transactions, making it less attractive for investors.
The lack of a consistent regulatory framework globally creates an unstable environment for cryptocurrencies, further adding to their risk as an investment.
4. Security Issues and Scams
The decentralized nature of cryptocurrencies, while one of its selling points, also makes it a prime target for cybercriminals.
According to a report by Chainalysis, the amount stolen in cryptocurrency hacks and scams reached a record $14 billion in 2021.
Although efforts have been made to enhance security, 2024 has seen continued instances of high-profile hacks.
For example, in July 2024, a DeFi (Decentralized Finance) platform was hacked, resulting in the loss of over $11 million worth of digital assets.
These incidents highlight the vulnerabilities in the crypto ecosystem, where users can lose their entire investments due to security breaches.
Additionally, the crypto space is rife with scams.
Ponzi schemes, rug pulls, and fraudulent Initial Coin Offerings (ICOs) have proliferated, preying on the greed and ignorance of retail investors.
In one of the largest crypto fraud cases in 2023, a fake investment platform promising guaranteed returns swindled investors out of $3,9 billion before its operators disappeared, leaving investors with nothing.
5. Lack of Consumer Protection
Traditional financial systems are heavily regulated, with consumer protection laws in place to safeguard investors.
In contrast, the crypto market operates largely without such protections.
When an investor’s funds are lost due to a hack, scam, or exchange failure, there is often little to no recourse for recovery.
For instance, in the collapse of the cryptocurrency exchange FTX in late 2022, over one million users were left in limbo as the exchange declared bankruptcy.
Many users lost their life savings, with no FDIC insurance or government-backed protection to fall back on.
By 2024, similar situations have continued to arise, with smaller exchanges going under and leaving their users empty-handed.
The lack of a safety net in the crypto world contrasts sharply with traditional finance, where deposit insurance and regulatory oversight provide a level of security for consumers.
This absence of consumer protection makes the crypto market a perilous place for the average investor.
6. Association with Illicit Activities
Cryptocurrencies have long been associated with illicit activities, including drug trafficking, ransomware attacks, and money laundering.
While blockchain technology itself is neutral, the anonymity it can provide has made it attractive to criminals.
In 2023, the U.S. Department of Justice (DOJ) dismantled a major ransomware network that had extorted over $130 million in Bitcoin from victims worldwide.
This operation underscored the ongoing use of cryptocurrencies in cybercrime.
Despite efforts to regulate and monitor crypto transactions, the pseudonymous nature of these assets makes it difficult to prevent their misuse entirely.
Furthermore, a report by the Financial Action Task Force (FATF) in early 2024 emphasized that despite increased regulation, cryptocurrencies continue to be a preferred method for laundering money, particularly in jurisdictions with lax enforcement.
This ongoing association with illegal activities tarnishes the reputation of cryptocurrencies and fuels calls for stricter regulation or even outright bans.
7. Speculative Nature and Lack of Intrinsic Value
Critics of cryptocurrency argue that it lacks intrinsic value, unlike traditional assets such as stocks or bonds, which are backed by the earnings of companies or the creditworthiness of governments.
Cryptocurrencies, on the other hand, derive their value primarily from speculation and the belief that someone else will pay more for them in the future.
This speculative nature has led to the creation of countless cryptocurrencies with little to no real-world use case.
In 2024, there are over 20,000 cryptocurrencies listed on various exchanges, but the vast majority have no practical application and are unlikely to survive in the long term.
The collapse of numerous altcoins during market downturns has left many investors with worthless tokens, further underscoring the speculative and risky nature of these assets.