How Risky Is Bitcoin? What to Look Out For

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bitcoin

What Exactly Is Bitcoin?

Bitcoin, which is frequently referred to as a cryptocurrency, a virtual currency, or a digital currency, is a totally virtual form of money. It’s similar to an online equivalent of cash. You can use it to purchase goods and services. However, not many merchants accept it currently, and several nations have outright banned it. Bitcoin was invented under the pseudonym “Satoshi Nakamoto” by a programmer or group of programmers. However, the true creator(s) of Bitcoin remains unknown.

Bitcoin is one of the most commonly utilized cryptocurrencies. In a cryptocurrency system, virtual “coins” or “tokens” are being used in place of real currency. Coins are worthless since they are not backed by gold or silver. Bitcoin was developed to address many significant problems facing real money like centralization and government regulations. 

Does this mean that the bitcoin crash can not happen? No, a crash is still possible. In fact, there are many reasons why bitcoin holders and governments are scared of bitcoin. Cryptocurrency was created to guard against fraudulent activities associated with real currency, but fraud does exist in the Bitcoin market today. Reports of bitcoin use in dark web activities and of ransom payments demanded by hackers have made the price of bitcoin unpredictable. 

Last July, a massive Twitter breach affected many celebrity accounts, including that of President Joe Biden, former President Barack Obama, and Tesla CEO Elon Musk. The scammers fraudulently moved bitcoin worth hundreds of thousands of dollars in that singular act.

This raised concerns about bitcoin’s safety for many. People began to wonder: could a bitcoin crash be imminent?

While bitcoin enables users to trade anonymously (possibly making fraud easier), it is not entirely anonymous. Bitcoin, when compared to other assets, is a “highly volatile, highly risky investment,” according to James Ledbetter, editor of the fintech weekly FIN and regular contributor to CNBC. “There have been many instances of bitcoin theft and fraud, which should give the ordinary investor pause, especially if investing a significant sum. Those, I believe, are valid concerns,” Ledbetter adds. However, he believes they are “exaggerated.”

The price of bitcoin plummeted from over $20,000 in 2017 to $3,122 in 2018, wiping away billions of dollars from the entire cryptocurrency market cap. While this may result in substantial profits for some, it can also result in significant losses.

That is why others, like billionaire investor Mark Cuban, compare bitcoin to sports betting and urge anyone that wants to jump in to invest only the amount of money they can afford to lose. Even though no investment is risk-free, investing in bitcoin has unique risks and obligations compared to typical assets such as equities, bonds, and mutual funds. Bear these risks in mind before investing in bitcoin:

Scams Involving Bitcoin

Newbies to the crypto space are frequently the prime targets of both low- and high-level criminals. These are generally persons or organizations who exploit people using a variety of communication channels, including social media platforms such as Facebook, Telegram, YouTube, WhatsApp, Twitter, and through emails. They will typically peddle enticing stories about how they made enormous profits trading or investing in bitcoin. They would then approach unsuspecting victims, proselytize, offer their ‘expertise,’ and promise significant earnings.

Volatility in the Market

Is cryptocurrency going to go back up? And could Bitcoin crash? The answer is generally yes. Its inherent volatility is a source of fear for traders. Within an hour, the price of bitcoin might swing by as much as 20%. When prices fall quickly and sharply, most rookie traders and investors panic and sell at a loss. Bitcoin’s price fluctuation, like that of the majority of traded assets, is heavily influenced by the news. For example, when a respected investor or recognized institution invests in bitcoin, the price generally appreciates. And when news of a crypto exchange breach breaks, for example, panic sales occur, and the price of bitcoin plummets.

Lack of Universal Acceptability

According to Ted Jenkin, CEO of Oxygen Financial, it’s important to remember that bitcoin and other cryptocurrencies are still in their infancy. And these modes of payment have not yet reached mainstream usage. For example, they remain ineligible for use at large shops such as Walmart or Target. As a result, you should avoid having an excessive amount of your portfolio in bitcoin group shares and investments.

Bitcoin has Regulatory Challenges

Digital money is a relatively new concept, and central banks worldwide are still grappling with its possibilities. Regulation is a significant element determining the price of bitcoin. Every time a government has cracked the policy whip, the cryptocurrency’s ascent has been halted. At the time of writing, China has declared all bitcoin and cryptocurrency illegal. The U.S. government has not yet asserted an exclusive regulatory authority over cryptocurrencies, leaving it up to individual states to choose how their residents can engage.

The Competition is Fierce

One frequent concern linked with cryptocurrencies is the possibility of the assets being supplanted by a more efficient, secure rival. However, considering that both are built on open-source code that anybody can copy on GitHub, this is becoming increasingly improbable. Recent developments within the Bitcoin ecosystem and competition from other digital currencies might have a significant influence on the technology’s future success. Just this month, news broke out of a smart contract coming to bitoin. You may want to ask: “Is that why bitcoin’s price is rising today?”

Have you been pondering whether or not to purchase bitcoin? Again, keep in mind that Bitcoin is a high-risk asset, and no one alive can adequately predict how it’s prices will change. 

Alternatives to Direct Bitcoin Investments

Still afraid of investing directly into bitcoin, you can invest in companies that have bitcoin in their balance sheets like:

  1.     Companies that are in bitcoin group shares
  2.     Grayscale Trusts.
  3.     Crypto trading platforms
  4.     Blockchain ETFs

Featured Image: @Twenty20

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