The Risks of Bitcoin
The Risks of Bitcoin that investors need to be aware of
Risk one-The volatility of bitcoin
Everyone is aware of how erratic the value of bitcoin can be, and those who invest in it will watch it fluctuate wildly. Investing in bitcoin is not a good idea if you can’t handle its ups and downs. If the loss of your capital will make you lose sleep, there is not much to gain. I can’t emphasize enough how crucial it is to invest in the cryptocurrency market with your discretionary funds.
What exactly is discretionary spending?
Spending on travel, dining out, entertainment, hobbies, and sports costs money.
You would never pay for entertainment, such as a day at the races, with the rent money or money set aside for your retirement, so you shouldn’t use that money to gamble on the cryptocurrency market either.
Risk two-Hacking
A company called “Bitcoin-related investments were held in funds at Cryptopia, an online trading platform. All those who had bitcoin invested with Cryptopia lost their money after it was hacked. Some depressing accounts of how much money some people lost were told.
It must be emphasized once more that investing in cryptocurrencies should never be done with money you cannot afford to lose, nor should you put all of your eggs in one basket as many of these investors seem to have done.
I should also mention that given the rising price of bitcoin, the actual sum of money lost by investors in Cryptopia is probably greatly exaggerated. If someone invested $1,000 in bitcoin and it increased to $10,000 over the course of a few years, only for them to lose everything. Even though they only lost $1,000, it will be noted that they lost $10,000.
Risk three-Lost passwords
An Australian man who cannot even remember his password is unable to access his bitcoin wallet. If he makes ten unsuccessful attempts to log into the bitcoin website, it will permanently lock him out of his wallet. He has over 300k in his bitcoin wallet and has made eight.
Writing down your password and storing it securely away are the takeaways from this incident.
The other piece of advice is to diversify your holdings so that you won’t lose too much money all at once if something terrible happens.
Risk four-Government controls
China has prohibited cryptocurrency trading, demonstrating the power of governments to do so. Several agencies in China have joined forces to ban what they describe as “illegal” cryptocurrency activity. This is not to suggest that other nations will do the same, but it does show that governments do have the authority to make such decisions.
Risk five-Taxation
Death and taxes are the only two things in life that are guaranteed. The taxman will eventually want a piece of your bitcoin pie, you can be certain of that. It doesn’t matter if it comes in the form of a capital gains tax or a rise in the price of bitcoin. Remember that you may be able to claim a tax refund on any capital losses if you are paying taxes on the capital gains from your bitcoin. A competent accountant can help you with this.
Regardless of the type of capital gains you are investing in, you should always keep in mind that there is a chance of capital loss whenever there is a chance for capital gains. It cannot be emphasized enough that because investing in cryptocurrencies is risky, you should only invest money that you can afford to lose, such as bitcoin.