Although Bitcoin was initially to serve as a means of payment, investors have discovered it can also work as a store of value. Today, Bitcoin is one of the most profitable investment assets, attracting institutional and retail investors. Over recent years, it has outperformed several traditional asset classes, including precious metals. However, investing in Bitcoin also comes with risks that every investor should understand before investing. The following article explores the principal risks of investing in Bitcoin. Bitcoin. Exchanges like BitiQ are more likely to get hacked, even with smart wallet protections. Besides, investors can only retrieve their assets if they remember their private keys.
High Volatility and Market Fluctuations
Like other cryptocurrencies, Bitcoin is a highly volatile asset with constant price fluctuations. Bitcoin prices increase or decrease based on public perceptions mainly driven by investor sentiments. The values can go up or down by huge margins within a concise duration. For instance, the price of one Bitcoin as of December 17th, 2017, was $20,000, but on the 24th of the same month, investors could not sell their investments for $14,000. The Bitcoin market is constantly rippling up and down, making it difficult for investors to tell whether they will get returns on their investments. While there is no specific way to beat Bitcoin’s volatility, investors can avoid massive losses by investing cautiously.
Cybertheft
Bitcoin is an internet-based asset that users can only access and transact online. As a result, it is open to a wide range of cyber threats. Hacking is one of the most common cyber threats, leaving many Bitcoin investors with severe losses. While the Bitcoin network validates all transactions on a public ledger, retrieving stolen Bitcoin is virtually impossible since transactions are irreversible.
Fraud
Bitcoin’s underlying blockchain technology verifies and validates all transactions on a digital ledger. That helps to prevent the risk of double spending. However, a fair amount of fraud still exists in the cryptocurrency market. Bitcoin’s immense popularity has impacted the proliferation of several fake exchanges looking to swindle unsuspecting clients. Although government agencies such as the Consumer Finance Protection Bureau have warned against unscrupulous crypto exchanges and transactions, many crypto investors still fall victim to fraudulent schemes. Although even the Bitcoin network has created systems to deal with such risks, security remains a critical issue for investors.
Heavy Reliance on Technology
Bitcoin is a decentralized digital currency that runs on tech-based systems and platforms. The creation of new coins and all transactions involving Bitcoin occur online. The Bitcoin network relies on blockchain technology to validate payments and keep the systems running. Bitcoin is only worth something with technology. Besides, there is no physical collateral to back up Bitcoin like other assets. Bitcoin’s 100% reliance on technology exposes investors to several risks, including online attacks and even network shut down. It also means investors cannot access their investments if the internet shuts down.
Little to No Regulation
The Bitcoin market is currently operating without any effective regulations. While Bitcoin is recognized and accepted in many parts of the world, several governments still need to take a clear stance on regulating the crypto market. Besides, no central authority exists to redeem investors if transactions go wrong. That creates several loopholes for criminals and uncertainties about Bitcoin’s future.
Overall, Bitcoin is a high-value asset that promises lucrative investment returns for all investors. However, investing in Bitcoin also comes with serious risks that every investor should understand beforehand. The above article has discussed the main dangers when investing in Bitcoin. Please have them in mind to make informed decisions.
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