Bitcoin Risks Investors Should Be Aware Of
One risk-Bitcoin’s volatility
Everyone knows how volatile bitcoin is and those who invest in it will see the value of this cryptocurrency fluctuate significantly. Unless you can handle the rise and fall of bitcoin, investing in bitcoin is not for you. Little is gained if losing your capital will cause you to lose sleep. I cannot stress enough the importance of using your discretionary spending money to play the cryptocurrency market.
What is discretionary spending?
This is money spent on travel, dining, entertainment, hobbies and sports.
You would never spend rent money or retirement savings on entertainment, such as a day at the races, so you shouldn’t use that money to play the cryptocurrency market either.
Risk bi-Hacking
A company called “Cryptopia”, which was an online bitcoin trading platform, had funds invested in Bitcoin. It got hacked and everyone who had bitcoin invested with crypto lost their money. There were some sad stories about the large amount of money lost by some. individuals
It bears repeating that you should never play cryptocurrency with funds you cannot afford to lose or put too many eggs in one basket as many of these investors seem to have done.
The other thing I should add is that the actual amount of money lost by crypto investors is likely to be wildly inflated by the rise in the price of bitcoin. If someone invested $1,000 in bitcoin and this rose to $10,000 in a few years, they have a lot to lose. This person will be recorded as having lost 10k when in fact they have lost 1k.
Risk of losing three passwords
An Australian man is locked out of his bitcoin wallet because he can’t remember his password. The website that holds his bitcoin will permanently lock him out of his wallet after ten failed login attempts. He has done eight. He has more than 300k in his bitcoin wallet.
The lesson here is to write down your password and keep it in a safe place.
The other tip is to diversify your portfolio so you don’t lose too much in one fell swoop if something goes horribly wrong.
Risk four-Government controls
Governments have the ability to ban crypto trading; China has done just that. Several Chinese agencies have joined forces to ban what they describe as “illegal” cryptocurrency activity. This does not mean that other countries will follow suit, but it does show a point that governments have the power to do so.
Risk five-Tax
Two things are certain in life, death and taxes. Rest assured that at some point the taxman will want a piece of your bitcoin pie. Whether it’s in the form of Capital Gains Tax or increasing the value of bitcoin. It’s worth remembering that if you’re being taxed on your bitcoin capital gains, it may be possible to get a tax refund on capital losses. A good accountant will advise you here.
Regardless of the capital gains you are investing in, keep in mind that when there is a potential for capital gains, there is also a capital loss. Investing in cryptocurrencies is risky, so it cannot be stressed enough that the money you invest in bitcoin should be money you can afford to lose.