Even though I've made over $1 million buying Bitcoin, there is one huge reason why it's still just a gamble and not an investment.
It could be made illegal at any time, by any country. Here's why and how it could happen.
Bitcoin and other digital currencies are still an experiment for everyone. You are watching the craze unfold at the same time as government leaders and agencies are. It's not some under-the-radar secret.
While countries can't stop bitcoin or other cryptocurrencies, the United States, or any major power, could come out and make it illegal to buy, sell, or possess bitcoin or its competitors.
It's already banned in five countries, according to Bitcoin News, and it's regulated at radically different levels in several others. More nations could pass regulations to make it very difficult to use or possess.
Just because cryptocurrencies are legal now doesn't mean they will always be. For example, in the United States in September 2016, a federal judge said bitcoin qualified as money in a hacking case, but that precedent could be challenged by another judge or agency.
While the United States government has been pretty quiet about it, I can guarantee you the bigger cryptocurrencies get, the more regulations the feds will put in place. That's just what governments do.
While you might think that bitcoin and other cryptocurrencies are safe because they don't have a central bank behind them, the bigger and more valuable these currencies collectively get, the more afraid countries are going to become.
All of the regulations have occurred when bitcoin was less than $2,000 a coin and the total market cap of the currency was relatively small. But now that bitcoin has sometimes passed $17,000 a coin, its market cap stands at around $278 billion, which is larger than massive company's like Visa and even many countries.
And that's just bitcoin. There are thousands of other cryptocurrencies and more being launched every day. The value of all of them could easily reach into the trillions of dollars.
The last thing the United States, or any other country wants is a currency circulating that they can't control.
It's no secret that bitcoin and other cryptocurrencies are being use to both scam money from unknowing investors and illegally embezzle both within countries and across country lines. While bitcoin was conceived as a way to pay for items easily online, because it's so expensive, most people aren't buying anything with it. Instead they are using it to store and transport money.
Just this week the United States Securities and Exchange Commission chairman Jay Clayton released a statement on cryptocurrencies where he said that, with cryptocurrencies and ICOs (initial coin offerings), "there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation."
While bitcoin is currently designated as a commodity, if you do invest in bitcoin or any other cryptocurrency, you proceed at your own risk.
Will the United States government make bitcoin illegal? Who knows. But as bitcoin continues to increase in value, fraud gets out of control, or they feel like they don't have control, the feds could put significant regulations on bitcoin and other cryptocurrencies. Any government could.
This is what makes bitcoin and its competitors so risky. I can tell you one thing for sure: It's definitely not worth taking out a second mortgage on your house or liquidating your 401(k) to buy bitcoin. It's just not worth the risk.
Grant Sabatier is the Founder of Millennial Money, where he writes about personal finance, side hustling, and investing. He reached financial independence at the age of 30 and is currently working on his first book for Penguin/Random House, set to be released in 2018.
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