In the past five years (as of June 26), the price of Bitcoin (BTC 1.89%) has skyrocketed 454%. There aren't many assets that have outperformed this one, which currently carries a market cap of $1.2 trillion.
There are compelling reasons for investors to buy the world's leading cryptocurrency right now, especially as it trades at 18% off its peak price. But there are also risks.
Regulatory
In the U.S., the Federal Reserve has a powerful influence over the economy. That's because it can set interest rates and adjust the money supply to spur or constrain growth. The central bank essentially controls the currency and affects the country's finances.
Bitcoin is a direct competitor to the current system, mainly because it's a digital, borderless, and decentralized monetary network. There's no single entity in charge, and the rate at which new coins are mined cannot be adjusted.
Perhaps the biggest risk to Bitcoin may be that the U.S. or the European Union will decide to ban it.
Software
Ethereum, Cardano, and Solana are built with functionality for smart contracts. Bitcoin, on the other hand, has a simpler technical design because its primary use is as a store-of-value asset.
However, software bugs may be introduced at some point. This might happen, for instance, if the majority of the computer operators who sustain the blockchain approve a network upgrade that produces errors in the ledger that stores all transactions.
Quantum computing
Staying on the topic of technical risks, quantum computing is a technology that could cause problems for Bitcoin. Quantum computers can process complex problems much faster than other types of computers.
The thinking is that they could crack Bitcoin's cryptography and expose everyone's private keys. This would undermine the network's security, most likely causing the price to tank.
In this scenario, though, there could be even more pressing problems. If quantum computing could hack Bitcoin's network, maybe it could get past the security protecting financial institutions or governments.
Although this is a risk to be mindful of, I'm sure that Bitcoin's developer community is thinking about defending against this with new security measures. And for what it's worth, Bitcoin has never been hacked in its roughly 15-year history.
Speed and scalability
According to bitinfocharts.com, Bitcoin can process only six transactions per second right now. This is significantly slower than a platform like Visa, which can handle 65,000.
Because of its focus on decentralization and security, speed hasn't been Bitcoin's strength. And it might never be able to handle a greater number of transactions.
A key Layer-2 development, known as the lightning network, is in development. However, should it not work out, Bitcoin's price potential could be capped.
Volatility
Although Bitcoin has been a fantastic investment in recent years, it has been an extremely volatile ride. This digital asset has experienced multiple declines of more than 50% throughout its history, making it anything but an easy journey for its holders.
One could argue that Bitcoin is now a more mainstream financial asset than in the past. There are financial products that support its adoption, like the new spot exchange-traded funds. And its market cap rivals that of some of the world's most valuable companies.
However, buying and owning Bitcoin for the long haul might still present too much of a psychological hurdle for most. Until the volatility is reduced substantially, this could remain the case.
