Bitcoin Risks Investors Should Be Aware of
Risk one: bitcoin volatility
Everyone knows how volatile bitcoin is and those who invest in it will see the value of this cryptocurrency fluctuate quite drastically. Unless you can handle the rise and fall of bitcoin, investing in bitcoin is not for you. There is little to be gained if the loss of your capital is going to keep you up at night. I cannot stress enough the importance of using your discretionary spending money to play the cryptocurrency market.
What is discretionary spending?
It’s money spent on travel, dining out, entertainment, hobbies, and sports.
You would never spend your rent money or the money you have set aside for your retirement on entertainment, like a day at the races, so you shouldn’t use that money to play the cryptocurrency market either.
Risk Two-Hacking
A company called “Cryptopia”, which was an online bitcoin trading platform, had funds invested in Bitcoin. It was hacked and all those with bitcoins invested with cryptoopia lost their money. There were some sad stories about the large amount of money lost by some. individuals
It must be repeated that you should never play crypto 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 greatly inflated due to the rise in bitcoin price. If someone invested $1,000 in bitcoin and this grew to $10,000 in a few years only to lose it all. It will be recorded that this person has lost 10k when, in reality, he only lost 1k.
Risk of three lost passwords
An Australian man has no access to his bitcoin wallet because he can’t even remember his password. The website where he has his bitcoin will lock him out of his wallet permanently if he has made ten failed login attempts. He has done eight. He has over 300k in his bitcoin wallet.
The lesson here is to write down your password and lock it away in a safe place.
The other tip is to diversify your portfolio so that if something goes terribly wrong, you don’t lose too much in one fell swoop.
Risk four-government controls
Governments have the ability to ban cryptocurrency trading; China has done just that. Several agencies in China have joined forces to ban what they describe as “illegal” cryptocurrency activities. This is not to say that other countries do the same, but it just illustrates a point that governments have the power to do this.
Risk five-Taxation
Two things in life are certain, death and taxes. You can be sure that at some point the taxman will want a piece of the bitcoin pie from him. Either in the form of a capital gains tax or the increase in the value of bitcoin. It should be remembered that if he is paying capital gains tax on his bitcoin, he may be able to claim a tax refund on any capital loss. A good accountant will be able to advise you here.
Whichever form of capital gains you are investing in, you should always remember that where the opportunity for capital gains exists, there is also the possibility of capital losses. Investing in cryptocurrency is risky, therefore it cannot be stressed enough that the money you invest in bitcoin should be money you can afford to lose.
