Undoubtedly, virtual currency represents the future of monetary exchange. Certainly, exchanging and trading goods online using a global currency will really improve the business and commerce world without the complications that come with using national currencies.
Today, Bitcoin is by far the most successful and popular digital currency. However, no matter how popular bitcoin is, it still comes with serious risks when it comes to investing in it.
With so many people in a rush to invest their money in Bitcoin, you should be aware of the risks surrounding this trending digital currency. Therefore, here are the top 10 risks of investing in bitcoin and helpful tips to avoid falling into its trap.
10. The Volatile And Fluctuating Market
The bitcoin price is never stable. As of November 6, 2018, the value of one bitcoin was about $ 6,461.01, compared to its price that was more than $20,000 on December 17, 2017, and about $14,626 days later on December 24, 2017. The bitcoin market is highly volatile. With such an unpredictable market, no one can tell you for sure that you will gain a return on your investment. So, to avoid bearing a huge loss, consider analyzing carefully the market and making small investments; they will help you achieve more benefices in the long term.
Cryptocurrency is based on technology, which leaves this investment at serious risk of experiencing cyberattacks, and Hacking is one of them since you have nothing to do to get back your lost or stolen bitcoins. Several reports claim that many buyers lose their investments mostly on exchanges and mining losses. It is more than likely for exchanges to be hacked even if you use the protection of a smart wallet. Moreover, if you do have a wallet and you happened to forget or misplace your key, there is nearly no way to retrieve your coins. Thus, remember to carefully research your own cryptocurrency wallets from time to time to be sure you have the most reliable options.
Besides hacking, the risk of fraud also surrounds the bitcoin market. More and more people are looking to trade bitcoin online using different exchanges, but as their popularity continues to increase, some of them may be fake. The Consumer Finance Protection Bureau and the Securities and Exchange Commission have warned against fraudulent exchanges where real investors’ Bitcoins are stolen. This lack of security raises doubts for many investors. While systems have been created to deal with such problems, security remains a serious issue that must be addressed.
7. Little Or No Regulation
Today, the bitcoin market operates without major regulatory rules. The government does not have a clear position on cryptocurrency because the market is just too new. It is not subject to tax, which makes it an attractive investment opportunity. However, the lack of taxation could create problems for authorities if bitcoin were to replace government currency. Although cryptocurrency is not widely accepted as a currency, the future is constantly changing and no one can predict the state of the bitcoin market after a few years.
6. Technology Reliance
Bitcoin refers to a technology-based online exchange. Typically, coins are mined digitally and traded through smart wallets, and kept under control with the use of different systems. Without this technology, cryptocurrency has no value and there is no physical guarantee to back it up, unlike other currency investment forms. While trading in gold, real estate, bonds, or mutual funds is somehow safe, Bitcoin owners are more vulnerable to cyber threats, online fraud, and a system that can be closed anytime as this currency is entirely technology-driven.
5. Block Withholding
Basically, bitcoins are created by solving different forms of mathematical equations known as ‘blocks’, which are created whenever an online bitcoin exchange takes place. A mining farm can use computing power to mine a block and hide it from honest miners rather than reporting the new block to the network. Essentially, it’s a way used by some who want to gain benefits on their own, while others have gone empty-handed.
4. Limited Use
Although Bitcoin is the future of monetary exchange, few companies see it as an applicable form of currency. Today, only a few online stores, like Overstock, Newegg, and Monoprix, are starting to allow cryptocurrency exchanges. Additionally, Bitcoin holders can use their funds to travel with a small number of companies such as AirBaltic, Air Lituanica, and CheapAir.com. However, several companies don’t really recognize bitcoin as a legitimate exchange.
3. Financial Loss
Bitcoin has been understood as a Ponzi scheme, with many people at the top taking advantage of the ignorance of others to make considerable profits. As more and more people buy bitcoin, it creates an economy in the form of a bubble that can burst at any time, causing bitcoin to lose value. As a result, many people with cryptocurrency will intend to sell their holdings but will not be able to offload. As there is no return on investment, investors can incur a painful financial loss.
2. Currency Or Investment Opportunity?
Seeing that cryptocurrency could be an efficient online currency exchange, buyers buy bitcoin with the intention of investing as much as they would with stocks. Some have even gone far and considered bitcoin as a solid retirement investment opportunity. With such a volatile market that contains no regulatory rules and no physical collateral, investors can end up suffering a big loss. While bitcoin can be profitable to a certain extent, it is always recommended that you approach such an investment with caution. Small investments and careful measures will always protect you from a large loss.
- Young Technology
Cryptocurrency is still a too new technology. Bitcoin has been around for 10 years, and it has yet to develop in different ways to become something solid. No one can predict how the market will evolve given that so many changes have taken place over the past few years. Bitcoin can simply become useless at any time in the future. Therefore, take prudent steps when approaching this promising investment opportunity, secure your funds and prepare for the future of the market.
We don’t provide any investment, tax, or financial advice with the information mentioned here. We recommend that you talk with a licensed professional for advice related to your situation.