Most new investors think investing in bitcoins at a particular time will lead to more profit. Some of them do succeed, of course, but it is definitely a wrong assumption to begin with. Barring the size and time of investments, acknowledging the factors which may drown your investments is more important than anything else when it comes to investing in bitcoins. These facts are called risks.
The following are the risks of investing in bitcoin
- Fluctuating Market
Bitcoin’s price is always fluctuating. As of 3 December 2019, one bitcoin is worth $7270. If you had purchased it on 17 December 2017, it would have been around $20,000. But by 24th December, traders couldn’t sell it for more than $14,626. The bitcoin market is constantly fluctuating. With an unpredictable market like this, no one can tell you whether you will get a return on your investment. In order to avoid huge losses, keep an eye on the bitcoin market. Make small investments, as they will be more beneficial in the long run.
Cryptocurrency is based on technology and this leaves it open to cyberattacks. Hacking is a serious risk and there is no way to retrieve if you lose your bitcoins or if they are stolen. Reports suggest that several buyers lose their bitcoin investments on mining and exchanges. Exchanges are likely to be hacked, even if you have a smart wallet. Also, if you forget or misplace your wallet key, it is usually no way to retrieve your bitcoins. So make sure you research your bitcoin wallet carefully so that you have the most reliable choice.
Addition to hacking, there is a huge amount of fraud in the market of bitcoins. Sellers and buyers are looking to invest and trade in bitcoins online, but some of the exchanges out there can be fake. The lack of security makes for big risk for traders and investors. There are systems in place, but security still remains a big issue.
- No regulation
Bitcoin market operates without any major regularities. The government doesn’t have a proper stance on cryptocurrency. Besides, cryptocurrency is not widely accepted as currency as of today.
- Relying on Technology
Bitcoin is an online exchange that is completely dependent on technology. Bitcoins are mined digitally and exchanged through smart wallet and are kept in check using different systems. Without technology, bitcoins are worth nothing. Unlike any other forms of currency or investments, there is absolutely no physical collateral to back this up. With real estate, gold, mutual funds or bonds, you can exchange them with something. But with a currency, which is 100% technology-based, bitcoin holders are more exposed to cyberattacks, online fraud, and more important, a system that can’t be shut down.
- Block Withholding
New bitcoins are manufactured by solving mathematical equations which are called ‘blocks’. They are created every time there is a bitcoin exchange online. A mining pool can use computational power to mine a block and then hide it from other miners instead of reporting the block that is new to the network. This will be beneficial to some, but others are left with nothing.
- Limited Use
While a few companies accept bitcoins as a viable form of currency, many companies don’t recognize bitcoins as a legitimate exchange.
- Financial Loss
As more and more people buy bitcoin, it creates a bubble economy. When the bubble bursts, bitcoin will essentially become useless. There will be many people holding bitcoins intending to sell but unable to. There is no return on bitcoin investment.
Cryptocurrency can help you build your wealth, only if you tread carefully: Reduce Your Risk
It is no doubt that investing in bitcoin can make you wealthy, but you need to take careful steps to reduce the risks of investing in bitcoin. Bitcoins can be effective online currency exchange, but you need to buy them with the intention of investing as you would with stocks. It is a solid investment opportunity for retirement, too. The best way to approach bitcoin investment is to tread with caution. Small investments at regular intervals (DCA in Bitcoin) is the best way to go.
Cryptocurrency is still a young technology. Bitcoin came only about ten years ago and it still has a long way to go. It still has to mature into something solid. Things have changed drastically in the bitcoin market in the last few years and no one can tell how the market would evolve in the future. So approach bitcoin investment with tremendous caution and do ample amount of research before investing in it. Research on the cryptocurrency exchange, too, before going through a particular channel. Take necessary steps to secure your funds.
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