Understanding whether Bitcoin is a safe investment depends on how you define security.
There’s no question that Bitcoin prices can be extremely volatile. In 2022 alone, the price of BTC dropped from almost $US48,000 to around $US19,300 at the time of writing.
Losses like that would send investors running for the hills for any other asset class. If you define security as an investment with a relatively stable price, then Bitcoin may not be a safe bet for your investment portfolio.
That said, Bitcoin’s mercurial nature may be changing.
“Bitcoin is becoming more integrated with traditional financial markets and is seeing significant participation from retail and increasingly from institutional investors,” says Ryan Burke, general manager at US financial services firm, Invest at M1. “Historically, BTC has been more volatile, but it has become a de facto mainstream alternative asset more recently correlated to large-cap tech.”
If you think of Bitcoin as digital gold, similar to a commodity rather than an investment security, you can add another dimension to the security question.
“Bitcoin technology is relatively safe, but it isn’t anonymous and relies on passwords,” says Daniel Rodriguez, chief operating officer at US firm, Hill Wealth Strategies.
While Bitcoin disguises your personal information, the address of your crypto wallet is publicly available.
“Hackers could use web trackers and cookies to find more information about the transactions that could lead to your private information and data,” Rodriguez says. If anonymity is part of your definition of security, Bitcoin might not be entirely secure.
Similarly, your cryptocurrency is only as secure as the crypto wallet you keep it in. If you lose your wallet password or someone else gets ahold of it, you lose your Bitcoin.
You will often see the disclaimers “not SIPC protected” or “not FDIC insured” attached to Bitcoin purchases. It means should the firm that holds your crypto investments fail, neither of these backstops will bail you out.
It’s worth noting that none of these concerns relate to the security of the Bitcoin network itself, according to Gil Luria, US technology strategist at D.A. Davidson Co. “It has survived unscathed for the 13 years of its existence and has yet to be hacked.”