Understanding whether Bitcoin is a safe investment depends on how you define security.
There is no doubt that Bitcoin prices can be extremely volatile. In 2022 alone, the price of BTC has fallen from nearly US$48,000 to around US$19,300 at the time of writing.
Such losses 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, the mercurial nature of Bitcoin may be changing.
“Bitcoin is increasingly integrating into traditional financial markets and is seeing significant participation from retail and increasingly institutional investors,” said Ryan Burke, managing director of US financial services firm Invest at M1. “Historically, BTC has been more volatile, but has become a de facto mainstream alternative asset more recently correlated with large-cap technology.”
If you think of Bitcoin as digital gold, akin to a commodity rather than an investment security, you can add another dimension to the issue of security.
“Bitcoin technology is relatively secure, but it is not anonymous and relies on passwords,” says Daniel Rodriguez, COO of US firm Hill Wealth Strategies.
While Bitcoin disguises your personal information, your crypto wallet address is publicly available.
“Hackers could use web trackers and cookies to find more transaction information that could lead to your private information and data,” Rodriguez says. If anonymity is part of your definition of security, Bitcoin might not be completely secure.
Likewise, your cryptocurrency is only as secure as the crypto wallet you keep it in. If you lose your wallet password or someone else gets hold of it, you lose your Bitcoin.
You will often see the “not protected by SIPC” or “not insured by FDIC” disclaimers attached to Bitcoin purchases. This means that if the company holding your crypto investments fails, none of these backstops will bail you out.
It should be noted that none of these concerns relate to the security of the Bitcoin network itself, according to Gil Luria, US technology strategist at DA Davidson Co. “It has survived the 13 years of its existence unscathed and has not been hacked again.”