7 biggest Bitcoin myths

The real story:

• Bitcoin has gone through multiple price cycles over the course of over 12 years — and has recovered each time to achieve new highs. As with any new technology, boom and bust cycles are expected. For example, during the dot-com era in the late nineties, many tech stocks saw rapid increases in valuation followed by significant crashes. This highlights how speculative bubbles can affect various asset classes, including cryptoassets, which may experience similar volatility and risk before stabilizing or achieving long-term growth.

• Some major Bitcoin investors believe that Bitcoin’s oscillations form a pattern typical of young markets. Bitcoin, they say, will surge and recede with smaller swings and longer durations between them until at some point in the future it settles into relative stability. But only time will tell.

The real story:

• A growing number of major funds and publicly traded companies (Tesla, Square, MicroStrategy) have bought millions or even billions of dollars worth of Bitcoin as a means to better manage their assets.

• Gold is also relatively stable in terms of price volatility. Bitcoin, on the other hand, is known for its significant price fluctuations, which can offer opportunities for high returns but also come with higher risk.

• In terms of convenience, Bitcoin can be sent digitally, making it more suitable for modern financial transactions. Gold is heavy, bulky, and difficult to transport and store, which can be a logistical challenge.

• Bitcoin received negative attention in its early years as a means of payment on the dark web. But when the first big dark-web market was shuttered, Bitcoin prices went up after just a few days — and continued to rise. 

• Like any form of money, some of it will be misused. But compared to US dollars, illicit use of Bitcoin is a drop in the bucket. According to a report, 2.1% of Bitcoin transaction volume in 2019 was related to criminal enterprise. 

• And because all Bitcoin transactions happen on an open blockchain, it’s often easier for authorities to track illicit activity than it would be in the traditional financial system. 

The real story:

• There will only ever be 21 million bitcoin. This scarcity is a major driver of its value. 

• Not only is the supply capped, but the amount of new Bitcoin being mined is declining over time in a predictable way. Every four years, in an event called a “halving,” block rewards paid to miners in the network are cut in half. 

• This helps ensure that the supply is always reducing which, by the basic economic principle of scarcity, has worked to keep the price of Bitcoin broadly trending upwards over the long-term — from less than a penny at the start to more than $66,000 as of mid-April, 2024. (See Bitcoin’s current price.)

• Bitcoin also derives value from the work the computers on the network contribute via a process called mining. Powerful computers all over the world supply a vast amount of processing power towards the work of validating and securing every transaction (in exchange they’re rewarded with new Bitcoin). 

The real story:

• Though thousands of rival cryptocurrencies have been created over the past decade, Bitcoin has always been and remains the most valuable cryptocurrency by market cap by a significant margin.

• It’s also the most popular, making up around 60% of the crypto market.

• Reasons include Bitcoin’s “first-mover” advantage, along with the goal to be a decentralized and open currency.

• Which isn’t to say that competitors aren’t welcome to try. Bitcoin is decentralized, meaning it’s operated by a global community of miners and nodes, instead of a central authority.

• For example, if Bitcoin’s underlying architecture has to change in order to add new functionality, features, or to protect against a newly-discovered bug, the community can initiate a fork to upgrade the network. 

• In order for the upgrade to be accepted, a 51% majority of the community must support the change. This allows Bitcoin to adapt and evolve as required, as seen with Bitcoin’s Segregated Witness (“SegWit”) upgrade in 2017. 

• Because the software is open-source, developers who aren’t able to gain community consensus can even create a hard-fork of the Bitcoin blockchain and make an entirely new cryptocurrency. For instance, Bitcoin Cash was created this way — but so far no Bitcoin clones have come anywhere close to replacing the original.

• Of course, a huge amount of innovation is happening in the space, so it’s conceivable that a bigger rival could emerge. But given current circumstances most experts don’t think Bitcoin being replaced anytime soon is a likely outcome.

The whole story:

• There is a fundamental rationale for a Bitcoin investor to believe that the value of their holdings should rise — whereas in a casino you know the odds are tilted in favor of the house. Of course there is no guarantee about future performance or continued results, but Bitcoin’s long term trendline over the last decade has been upward.

• One popular investing strategy for reducing the impact of volatility is dollar-cost averaging — in which you invest a fixed amount every week or month no matter what the market is doing.

• Bitcoin volatility appears to be on the decline. A recent Bloomberg analysis compared Bitcoin’s recent bull run to the 2017 boom — and found that volatility is considerably lower this time around. Why? The rise of institutional participants and the general stabilizing effect of crypto “going mainstream.”

• In the beginning of 2024, a significant development occurred in the world of Bitcoin investment. Spot ETFs for Bitcoin were officially approved in the US, marking a pivotal moment for the cryptocurrency. Unlike before, where Bitcoin investments could be seen as gambling, these ETFs offer a structured and regulated way to invest in Bitcoin. With increased oversight and regulation, these ETFs have the potential to attract a broader range of investors. As a result, Bitcoin may become more integrated into traditional investment portfolios.

• Whether Bitcoin or any other cryptocurrency has a place in your investment portfolio depends on your personal circumstances, risk tolerance, and investment time horizon. And even though Bitcoin has trended steadily upwards in over the past decade, it also has had substantial down cycles. Investors should be careful navigating volatile markets (and consider working with a financial advisor before making major investments).

The real story:

• Many misconceptions around the security of Bitcoin stem from attacks on third-party businesses and services that make use of Bitcoin, and not the Bitcoin network itself. High-profile hacks of early Bitcoin companies with flawed security procedures (like the one that hit the early Japan-based exchange Mt. Gox) and occasional data breaches (like the one that impacted users of the wallet provider Ledger) have made some users question the security of Bitcoin.

• Bitcoin’s core protocol has functioned securely with 99.9% uptime since its creation in 2009.

• A vast amount of computing power secures the network. And the miners that power the network are distributed throughout the world, with nodes in 100 countries —  which means there are no single points of failure.

The real story:

• Recent research by New York-based fund Ark Investment Management concludes that “Bitcoin is much more efficient than traditional banking and gold mining on a global scale.”

• A significant portion of Bitcoin mining is powered by renewable-energy sources (including wind, hydro, and solar). The actual number ranges from 20 percent to more than 70 percent, according to Cambridge Bitcoin Electricity Consumption Index. 

• The Cambridge researchers concluded: “Bitcoin’s environmental footprint currently remains marginal at best.”  

• An argument can even be made that the economic incentives inherent to Bitcoin mining are helping drive sustainable energy innovation, as miners constantly seek to increase profits by lowering their electricity costs — in a world where renewable energy is fast becoming the cheapest option.