The risks of Bitcoin that investors need to be aware of
Risk one – bitcoin volatility
Everyone knows how variable bitcoin is and those who invest in this will see that the value of this cryptocurrency varies dramatically. Unless you can handle the ups and downs of bitcoin, investing in bitcoin is not for you. Little can be gained if the loss of your capital will cause you to lose sleep. I cannot stress enough the importance of using your discretionary spending money to play in the cryptocurrency market.
What is discretionary spending?
It is money spent on travel, food, entertainment, hobbies and sports.
You would never spend money on rent or money you set aside for your retirement on entertainment such as going out to races, so you shouldn’t use that money to play in the cryptocurrency market either.
Risk Two-Hacking
The company called “Cryptopia”, which was an online platform for bitcoin trading, kept the funds invested in Bitcoin. It was hacked and all those with bitcoin invested with cryptocurrency lost their money. There have been sad stories about the large amount of money that some individuals have lost.
It must be repeated that you should never play money with cryptocurrencies with funds that you cannot afford to lose or put too many eggs in one basket, as many of these investors seem to have done.
Another thing I have to add is that the actual amount of money lost by cryptocurrency investors is likely to be very inflated due to the rising price of bitcoin. If someone invested $ 1,000 in bitcoin and this increased to $ 10,000 in a few years just to lose the lot. It will remain in the records that this person lost 10,000, while in fact she lost only 1k.
Risk of Three-Lost Passwords
An Australian man does not have access to his bitcoin wallet because he cannot even remember his password. The website where he has his bitcoin will permanently lock his wallet if he has made ten failed login attempts. He made eight. He has over 300,000 in his bitcoin wallet.
The lesson here is to write down your password and keep it locked in a safe place.
Another tip is to diversify your portfolio so that if something goes horribly wrong, you don’t lose too much in one hit.
Risk of four state controls
Governments have the option of banning cryptocurrency trading; China has done just that. Several agencies in China have joined forces to ban what they describe as “illegal” cryptocurrency activities. This does not mean that other countries will follow their example, but it only illustrates the point that governments have the power to do so.
Risk Five-Taxation
Two things in life are safe, death and taxes. You can be sure that the taxpayer will want a piece of your bitcoin pie at some point. Whether it’s a capital gains tax or an increase in the value of bitcoin. It should be borne in mind that if you are taxed on the capital gain of your bitcoin then it is possible to claim a tax refund on all capital losses. A good accountant will be able to advise you here.
Whatever form of capital gain you invest in, you should always keep in mind that when there is an opportunity for capital gain, there is also the possibility of losing capital. Investing in cryptocurrencies is risky, so it cannot be stressed enough that the money you invest in bitcoin must be money you can afford to lose.