Most people who are into trading or investing know that there is always an inherent risk to their investment. These investments can be varied, but typically, they range from stocks, gold, silver, and other precious metals to others like Litecoin (LTC), Bitcoin (BTC), and altcoins.
Some coins have shown tremendous growth, making even seasoned traders interested in them. However, various risks come along with bitcoin investment.
Let’s take a look at these risks.
1. Price change risk
Bitcoin is not a physical currency, and it does not have a stable value as you would find in actual dollars, euros, or yen. Bitcoin’s price fluctuates constantly and rapidly, which makes it very unpredictable. The cryptocurrency’s worth can change dramatically with no warning whatsoever.
If the value of your bitcoin investment drops suddenly and without explanation, you could lose everything – and that is certainly something to consider before making any purchase. If you want to trade with minimal risks, then you must choose Bitcoin Up app.
Because Bitcoin is an internet-based currency, hacking remains one of the major risks for its users. Hackers can steal large amounts of money from exchanges if their security systems are weak enough. Remember MtGox? This was once the world’s largest Bitcoin exchange platform, yet hackers still managed to steal $450m worth of Bitcoin in 2014.
It is advisable to use 2-factor authentication, strong usernames on exchanges, and never store large amounts on an exchange platform. Also, many people have their Bitcoin wallets on their mobile devices, which are also at risk of hacking. Certain precautions need to be taken when securing your wallet, such as enabling the Pin Code for your phone or adding Touch ID/Finger Print lock methods.
3. Irreversible Transactions
Bitcoin has become infamous for irreversible transactions where once you send out Bitcoins, you can’t get them back. This is true to some extent, but you can minimize the risk with precautions. All Bitcoin transactions, once confirmed, are irreversible; this means that if you sent Bitcoins to someone, your transaction can’t be undone; they’re gone forever.
Once a Bitcoin payment has been issued, there’s no way of getting it back unless the person who has received it refunds it (which is unlikely).
4. Liquidity Risk
Liquidity risk is when an investment cannot be sold quickly enough in the market at a price equal to or better than what was paid for it and so loses value. Bitcoin cannot currently be bought or sold as easily as other liquid investments.
The relative lack of companies willing to accept bitcoin means few places where bitcoin can be exchanged for fiat currencies without being taxed, restricted, or converted into other cryptocurrencies.
5. Bankruptcy Risk
If you invest in Bitcoin, the chances of becoming worthless are slim to none. However, if you don’t keep your Bitcoins secure or stored somewhere that they can’t be hacked into, there is a chance that someone could steal all of them.
This happened to James Howell, who invested in Bitcoins, and he threw away his hard drive, which had 7,500 Bitcoins on there. Today those Bitcoins are worth 4.6 million dollars. So make sure you have some good security for your wallet, so this doesn’t happen to you.
The Bottom Line
The article discusses the risks associated with bitcoins. It is not an endorsement or condemnation of any particular investment or investment strategy. Rather, it presents information that may assist you in making your own decisions about where to invest for maximum returns.
Read also: Advantages of Investing in Bitcoin