The cryptocurrency market has lost almost 50% of its value since peaking in November 2021 at close to $3 trillion. 2022 sees a 28% decline. The most important digital asset in the world, Bitcoin (BTC 3.41%), with a market cap of $600 billion (as of May 9), has followed this pattern.

Investors are staying away from riskier assets, including cryptocurrencies, as a result of the Federal Reserve’s decision to raise interest rates continuously throughout the year to rein in spiraling inflation. However, I try to avoid letting market trends determine my approach to investing. I instead focus on the upcoming ten years.

I do think that Bitcoin investment has potential as a long-term investment. But there are some significant concerns that I’m always considering. Let’s look more closely.

A potential regulatory threat

Unsurprisingly, the potential for stricter regulation is likely the biggest danger confronting Bitcoin investment and cryptocurrencies. China, the second-largest economy in the world, effectively outlawed cryptocurrency mining and possession in 2021. Additionally, to control the market, the government of India, a nation of 1.4 billion people, levied a 30% tax on cryptocurrency transactions.

To reduce the investment risks, diversify your crypto investments. While #Bitcoin and #Ethereum are the two biggest and most popular assets, they mostly move in the same direction. There are several alternatives to that are up and coming and can also be less volatile.

— BitOasis (@bitoasis) September 12, 2022

Governments do not like to cede control, which Bitcoin undercuts, because they have the authority to manage the money supply and tax their citizens. However, countries that forbid cryptocurrency risk falling behind in innovation, luring capital, and recruiting talent. I think it’s a good idea for the Biden administration to assign various government organizations the duty of researching and figuring out how to sustain digital assets safely. It maintains American leadership in the cryptocurrency sector.

Bitcoin wants to return power to the people, and I think this force will ultimately triumph over any country’s attempts to impose a ban. El Salvador and the Central African Republic are the only two nations that have made bitcoin legal tender within their borders. I believe that more emerging countries, especially those whose economies depend on the currencies of other countries, will probably take this path.

Scaling problems

The proof-of-work mechanism used by the Bitcoin network verifies transactions. A normal transaction takes almost 10 minutes to process, so it’s a sluggish procedure. Additionally, Bitcoin investment is limited to three transactions per second (TPS). This implies that complicated math problems must be solved using pricey and energy-intensive computers to add new blocks to the Bitcoin blockchain.

Bitcoin’s throughput needs to increase dramatically if it hopes to compete with traditional use cases like transfers or even simple purchases. Contrast this with Visa, which oversees the world’s largest payments network. Visa can process 65,000 TPS, which demonstrates its evident usefulness in people’s daily life.

Also Read: After a steep fall, is BTC gearing up for a climb?

A person is purchasing Bitcoin using a mobile cryptocurrency wallet.

The answer seeking to address this issue is the Lightning network. It’s a layer-2 blockchain that sits on top of the Bitcoin network and establishes a direct connection between two different users to enable quick and inexpensive transactions. An illustration would be a tenant that makes monthly rent payments to their landlord. It gets past Bitcoin’s capacity restrictions since balances reside on the Lightning network and are only posted to the regular Bitcoin network when both parties desire to complete the payment transaction. So, Lightning has the potential to significantly increase the usefulness of Bitcoin.

Volatility is still very high.

Although many individuals do, I do not consider volatility a risk. And I think that people and institutions won’t buy Bitcoin as a store of value, which is currently its main use case, because of the currency’s ongoing price volatility.

The most common bull-case scenario for the currency is that Bitcoin would someday catch up to gold as a store of value. If this scenario ever materialized, Bitcoin would have tremendous upside potential, given that the value of all gold that has ever been produced on Earth is believed to be worth more than $12 trillion. Furthermore, Bitcoin is preferable to actual gold because of its main characteristics, divvyable, totally finite, and transactable.

Nevertheless, investors may never have the stomach to acquire Bitcoin, given its volatility. For holding Bitcoin in your portfolio, you must be able to manage the ups and downs while disregarding the inescapable volatility. In today’s internet-driven society, when we are continuously inundated with news and pricing changes sent to our phones, this is particularly challenging.

By being aware of these significant dangers, you should be able to decide whether or not purchasing Bitcoin is a wise investment.