Bitcoin Risks

Bitcoin risks that investors need to know

The first risk – Bitcoin volatility

Everyone knows how volatile Bitcoin is and those who invest in it will see the value of this cryptocurrency fluctuate dramatically. Unless you can deal with the rise and fall of bitcoin, investing in bitcoin is not for you. There is little to gain if losing your capital means losing your sleep. I cannot stress enough the importance of using discretionary spending money to play in the cryptocurrency market.

What is discretionary spending?

It’s money spent on travel, dining out, entertainment, hobbies and sports.

You will never spend your rent or retirement money on entertainment such as a day at the races, so you should not use that money to play in the cryptocurrency market either.

The danger of two hacking

A company called “Cryptopia” which was an online Bitcoin trading platform that held funds invested in Bitcoin. It was hacked and all those who had bitcoins invested in cryptocurrencies lost their money. There have been some sad stories regarding the large sums of money lost by individual individuals.

We must repeat that you should never play cryptocurrency money with money you cannot afford to lose or put as many eggs in one basket as many of these investors seem to have done.

The other thing I have to add is that the actual amount of money that cryptocurrency investors have lost is likely to be greatly exaggerated due to the Bitcoin price rally. If someone invested $1000 in bitcoin and that rose to $10,000 in a few years only to lose that much. It will be recorded that this person lost 10k when in actual fact, he only lost 1k.

The risk of three lost passwords

An Australian man has been locked out of his bitcoin wallet because he can’t even remember his password. A website that has its bitcoins will permanently lock it from its wallet if it has made ten failed login attempts. I made eight. He has over 300,000 bitcoins in his wallet.

The lesson here is to write down your password and keep it in a safe place.

Another tip is to diversify your portfolio so that if something goes terribly wrong, you won’t lose much in one fell swoop.

The Four Risks Government Controls

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

The Five Risks – Taxes

Two things are certain in life, death and taxes. You can be sure your taxpayer will at some point need a piece of your bitcoin pie. Whether it’s in the form of a capital gains tax or an increase in the value of Bitcoin. It should be remembered that if you are taxed on capital gains from your bitcoin, it may be possible to claim a tax refund on any capital losses. A good accountant will be able to advise you here.

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