Investing in Bitcoin – What are the Risks?

Beginner’s Guide: What is Bitcoin?

Bitcoin is a digital currency or cryptocurrency pioneered by an anonymous “Satoshi Nakamoto”, back in 2009. An electronic version of money, where transactions are verified through “cryptography” (the science of encoding and decoding information). Hence the term “cryptocurrency”. Bitcoin is not associated with any government or central banks. It is mainly kept on an online ledger that securely tracks all records of transactions; this is organised in a network known as the “blockchain”. There are no physical or tangible Bitcoins, and balances are kept on these public ledgers, blockchain, where the public has access.

The rise of Bitcoins:

The mystery of bitcoin enticed the public to understand and learn the method of gaining revenue through this innovative form of digital currency. In the course of its 11-year life span, more and more traders and investors alike gain substantial wins. As reported by Business Insider, though characterised by a volatile market, a sharp decline in trading exchange was reported on November 25 last year, only to rise again and set an all-time high of $19,857, five days later (November 30, 2020). Reportedly a whopping 177% year-to-date increase. Just this March of 2021, it was reported that Bitcoin reached another all-time high, with prices surging to $60, 000.

Thus, international companies are now embracing cryptocurrencies, particularly Bitcoins as a mode of payment option. Elon Musk of Tesla announced that it would now accept bitcoins as a form of payment for all its model cars in the US. Fast-food options such as Burger King, Tim Hortons, and Popeyes, to name a few. Big tech companies are also embracing the revolution of Bitcoins. Paypal announced that their users can now buy, sell and keep cryptocurrencies by 2021.

However, as with all forms of financial investments and trading, cryptocurrency has its risk. Beginners and experienced traders may experience losses parallel to massive gains. Hence, trading platforms were developed and made available by collaborative works of financial experts, brokers, and software developers. Start trading with Bitcoin System today!

What are the risks?

Comparable to traditional investments, virtual currency is still new and developing. Equally like other digital currencies, it remains in the development and pioneering phase. As per Barry Silbert, CEO of Digital Currency Group “It is pretty much the highest-risk, highest-return investment that you can make”

1. Regulatory Risk

Like any other trading and financial investments, capitalising in Bitcoin is not for the risk-averse traders. Bitcoins are not regulated by the government. They may be used for black market transactions and any other illegal activities. Consequently, the government may regulate the use and sale of bitcoins.

However, cryptocurrencies are being embraced even by the government. In 2015, the New York State Department of Financial Services required companies dealing with the buy, sell, transfer, or storage of bitcoins to record customer identity, hire a compliance officer and maintain capital reserves. They also finalised regulations that require $10,000 or more to be recorded and reported.

 2. Security Risk

Most bitcoin users buy and sell their cryptocurrencies on different trading platforms. There are several popular online markets, known as Bitcoin exchanges. The digital age now allows the convenience of accessible and virtual financial exchange. Centralised banks now revolutionised to different online platforms, where online banking was developed. Such a form of transactions done virtually involves risk, so are cryptocurrencies.

Bitcoin exchanges are entirely digital and are at risk from hackers, malware, and operational glitches as with any virtual system. The risk of hackers targeting online bank transactions can also be a risk in bitcoin exchanges.

3. Insurance Risk

Trading investments are normally insured through Securities and Investment Programs, while bank accounts are insured through Federal Deposit Insurance Corporation (FDIC). As cryptocurrency is an emerging industry, exchanges and accounts are not yet insured by any type of federal government program.

Fortunately, the future of cryptocurrency, particularly bitcoins, are now in sight.  FDIC is now interested in ways on how to protect bitcoins and other cryptocurrency users. Reported last May 17, 2021, FDIC is seeking public information about “digital assets”. In summary of its press release, “The Federal Deposit Insurance Corporation (FDIC) is gathering information and soliciting comments from interested parties regarding insured depository institutions’ (IDIs’) current and potential activities related to digital assets. The FDIC is interested in receiving input on current and potential digital asset use cases involving IDIs and their affiliates”.

4. Fraud Risk

One user security that Bitcoins offer is private key encryption. This is used to verify coin owners and register transactions. Though risks are present in online banking transactions, fraudsters and scammers may attempt to sell false bitcoins. Reportedly last July 2013, SEC acted against an operator of a bitcoin-related Ponzi Scheme.

5. Market Risk

Like any other financial investment, the cryptocurrency market can experience a sharp increase and decrease in its market value. Subject to a high volume of buying and selling on exchanges, it has a high sensitivity to any newsworthy events. As seen in Forbes.com, Bitcoin’s market value rises above $50,000. It was also mentioned that a Citibank analyst analysed that Bitcoin may hit $318,000 by the end of 2022, comparing its impressive rise to the 1970s gold market.

However, as the bitcoin market is volatile and fluctuating, the use of trusted apps is highly encouraged. Search for trading platforms that are composed of a trusted team that can ease beginners and experienced traders into the accuracy and timing of trading—and also, optimising one’s profitability by introducing rigorously tested methods in the trading platforms.

The cryptocurrency market has been extremely volatile. A forecast of Snapchat’s first investor Jeremy Liew stated that it might hit $500,000 by 2030, making it more inviting. The rapid up and down of market trends recommend traders to study the different methods and use of trusted trading platforms. These may eliminate and decrease possible risks tethered to the wins of Bitcoins and Cryptocurrencies.