The risks of bitcoin

The risks of bitcoin that investors need to be aware of

Risk one – The instability of bitcoin

Everyone knows how unstable bitcoin is, and those who invest in it will see that the value of this cryptocurrency fluctuates quite dramatically. Unless you can handle the ups and downs of bitcoin, then investing in bitcoin is not for you. There is little to be gained if losing your capital will make you lose sleep. I cannot stress enough the importance of using your discretionary money to play in the cryptocurrency market.

What are discretionary costs?

This is money spent on travel, eating out, entertainment, hobbies and sports.

You would never spend money on rent or money that has been set aside for your retirement, for entertainment such as a day out of competitions, so you should not use this money to play in the cryptocurrency market.

Risk Two-Hacking

A company called Cryptopia, which was an online bitcoin trading platform, held funds invested in bitcoin. It was hacked and all those who had invested in bitcoins with cryptocurrency lost their money. There were some sad stories about a large amount of money lost by some people.

It should be reiterated that you should never gamble with cryptocurrency with funds you can’t afford to lose, or put too many eggs in one basket, as many of these investors seem to have done.

The other thing to add is that the actual amount of money lost by cryptocurrency investors is likely to be greatly increased due to the rising cost of bitcoin. If someone invests $ 1,000 in bitcoin and it goes up to $ 10,000 in a few years, just to lose the account. It will be recorded that this person lost 10k, when in fact they lost only 1k.

Risk Three-Lost Passwords

An Australian is locked out of his bitcoin wallet because he can’t even remember his password. The website where he has his bitcoins will lock him permanently from his wallet if he has made ten unsuccessful 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.

The other tip is to diversify your portfolio so that if something goes terribly wrong you don’t lose too much with one hit.

Risk four government controls

Governments have the ability to ban cryptocurrency trading; China did just that. Several agencies in China have joined forces to ban what they describe as “illegal” cryptocurrency activity. This does not mean that other countries will follow suit, but it simply illustrates the point that governments have the power to do so.

Risk five – Taxation

Two things in life are certain, death and taxes. You can be sure that at some point the tax will ask for a piece of your bitcoin pie. Whether in the form of a capital gains tax or the increased value of bitcoin. It should be remembered that if you are taxed on the capital gains of your bitcoin, then it may be possible to claim a tax back on any capital losses. A good accountant will be able to advise you here.

Regardless of the form of capital gains you invest in, it should always be remembered that when there is an opportunity for capital gains, there is also a possibility for a loss of capital. Investing in cryptocurrency is risky, so it cannot be stressed enough that the money you invest in bitcoin must be money you can afford to lose.