The Risks Of Investing In Bitcoin

Knowing the risks before investing in bitcoins

Bitcoin has been attracting speculative investors due to its rapid price appreciation. Thus, many individuals purchase Bitcoin primarily for its investment potential rather than its utility as a means of exchange. The purchase and use of bitcoin are subject to certain risks because of its digital nature and instability. Some governments have issued numerous investor alerts.

Should You Invest in Bitcoin?

Know these risks before you invest in Bitcoin:

✅ Bitcoin is Incredibly Volatile

Bitcoin is incredibly volatile due to its short history. A new concept takes time to settle and become widely accepted, and the same is true of cryptocurrencies. Trading Bitcoin can therefore be extremely risky. The bitcoin price can fluctuate dramatically within a day or even minutes. For instance, during a single day in 2013, Bitcoin’s price dropped by 61%, while the record drop for one day in 2014 was as high as 80%.

✅ Bitcoin is not Money

Another reason why bitcoin is so risky is the fact that it is a tradable asset, but it does not have any backing. It has value only because those trading it claims that it does. No government or regulatory body is supporting Bitcoin’s value. As a result, the value is mainly fictitious. If fewer people accept Bitcoin as a form of currency, the value of these digital units may decrease. As the price of bitcoin declined from its all-time high in late 2017 and early 2018, there was some speculation that the bitcoin bubble had burst.

✅ Regulatory risk

There is the possibility that people use Bitcoin for illegal activities, money laundering, or tax evasion. Governments may, therefore, seek to regulate, restrict, or even ban the use and sale of Bitcoin.

For example, the New York State Department of Financial Services finalized regulations in 2015 requiring companies that buy, sell, transfer, or store Bitcoin to keep records of customer ids, make provision for a compliance officer, and maintain capital reserves. It is mandatory to record and report any transaction worth more than $10,000.

It raises questions about the longevity, liquidity, and universality of Bitcoin (and other virtual currencies) in the absence of uniform regulation.

✅ Security risk

Bitcoin is generally not acquired through mining operations by individuals who own and use the cryptocurrency. Instead, they buy and sell Bitcoins and other digital currencies on popular online marketplaces, known as Bitcoin exchanges or cryptocurrency exchanges.

Bitcoin exchanges are entirely digital and can be hacked, infected by malware, and may encounter operational issues. Theft of an encryption key could enable a malicious hacker to transfer the stolen Bitcoins to another account if they gained access to a Bitcoin user’s computer hard drive.

In addition to Bitcoin exchanges, hackers may target digital wallets and accounts related to Bitcoin exchanges. There was a significant incident in 2014 when Mt. Gox, a Japanese bitcoin exchange, was forced to close due to the theft of millions of dollars worth of Bitcoins.

Considering that all Bitcoin transactions are permanent and irreversible, this is particularly problematic. It is akin to dealing with cash. Reversing a Bitcoin transaction is only possible if the recipient refunds the transaction. The payment process is not handled by a third party, as with a debit or credit card. There is, therefore, no means of protection or appeal if there is a problem.

✅ Insurance risk

The Federal Deposit Insurance Corporation (FDIC) insures bank accounts for up to a certain amount in most jurisdictions. Also, investments may be insured through the Securities Investor Protection Corporation (SIPC). However, Bitcoin exchanges or Bitcoin accounts are not protected in the same manner.

✅ Fraud risk

It is possible to sell counterfeit Bitcoins even though Bitcoin encrypts private keys to verify owners and record transactions. Bitcoin price manipulation is another common fraud.

Conclusion

Due to the risks above, many financial advisors advise against investing a large share of your portfolio into Bitcoin. Instead, they recommend investing no more than 1% to 10% if you are passionate about Bitcoin.

Comments

Invoice Discounting vs. Invoice Factoring - Which One Is Better?

You may consider invoice finance if you want to improve your cash flow. Invoice financing includes invoice discounting and invoice factoring. It is common for businesses to sell goods and services on credit to large customers, such as wholesalers and retailers. The customers do not have to pay for the purchased goods immediately. But instead, they receive an invoice that shows the amount due and the due date for payment. The provision of such credit to customers ties up the funds that businesses may otherwise use to expand and invest. To finance slow-paying receivables or ensure short-term liquidity, companies may choose to finance their invoices. In the U.S. alone, over 30% of small businesses are facing, or expect to experience, late or unpaid invoices, which have detrimental effects on company investments, supplier payments, and payroll. Fortunately, invoice financing can help you avoid these difficulties. How does invoice financing work? What is Invoice Financing? Invoice finan

Is Accounts Receivable Financing The Right Option For Your Business?

In a business owner’s journey, they will probably need to secure additional financing to help it operate or grow. Although you have previously qualified for a traditional business loan or worked with a generous investor to fund your initial startup, those options are not guaranteed to be available the next time you need financial assistance. That is when accounts receivable financing can come in handy. What is Accounts Receivable Financing? Accounts receivable financing, also called invoice financing , provides your business with money based on the value of your outstanding invoices. Generally, accounts receivable are assets whose value is equal to the unpaid balances on the invoices (customers who have been billed but have not yet paid). If you were to obtain a business loan, finance companies would use unpaid invoices as collateral to calculate how much money to loan you, and they will charge you a fee based on the value of your outstanding invoices. How Does Accounts Receivable

The Best Startup Business Loans for Financing Your Business

What Is a Startup Business Loan? A company may need to have been in operation for at least one year before it is eligible for certain types of business funding. In the case of new businesses in need of funding sooner, a startup business loan could be a good option. A startup business loan is a form of financing made available to businesses with no or little business credit history. It is common for startups to obtain funding through term loans or Small Business Administration (SBA) loans, but they may also consider business credit cards or asset-based financing. Startup owners can also utilize less traditional financing methods like crowdfunding to access the working capital they need to launch and grow their businesses. Why are startup loans for new businesses important? Starting a business consumes many resources. In addition to finding a market fit, hiring the right team, and ensuring your product is market-ready, you will need to find ways to cover your costs. This can be somewh

IHerb - The Leading Online Health Product Marketplace (10% Discount Offer)

iHerb is a United States-based retailer offering over 30,000 natural products from over 1,200 popular brands. It has been the global leader in health and wellness since 1996, offering a wide range of products, including vitamins, supplements, grocery items, beauty products, and self-care items. iHerb ships to over 185 countries, offers 34 localized payment options in 74 currencies and provides 24/7 customer support online. It ships orders quickly and at low rates and offers free shipping to over 50 countries. All orders are shipped by iHerb from its climate-controlled fulfillment centers in the U.S. and Asia to ensure product quality. For items such as those containing acidophilus which requires regulated temperatures, all iHerb distribution centers are maintained at 74-75 degrees Fahrenheit (23-24 degrees Celsius). Further, NSF International has certified iHerb's distribution facility in Hebron, Kentucky, as a Good Manufacturing Practices (GMP) facility, certifying that the compa

How To Get Best Bad Credit Business Loans Fast?

The cash obtained from a bad credit business loan can kick-start your business’s growth and help get your finances back on track. Understanding Bad Credit Business Loans and Credit Score Business owners with bad credit may find it challenging to finance a startup or expand their existing businesses. Fortunately, bad credit business loans can make financing more accessible, even for less creditworthy borrowers and businesses without established credit histories. In addition to transparency in pricing and terms, the best lenders can quickly fund a bad credit business loan in one to two business days. Lenders typically consider both the personal credit score of the business owner and the business credit score when evaluating a loan application. However, the applicant’s personal credit score is of even greater significance for startups and other businesses without a credit history. To qualify for a bad credit business loan, a business owner must have a personal FICO score * of at least

Blogging On Finance

Search This Blog