Bitcoin has been on a tear lately. At the time of this writing, a single bitcoin is worth more than $41,993. That’s an increase of more than 1,000% in the past year. If you had invested just $1,000 in bitcoin at the beginning of the year, it would be worth more than $10,000 today. Some people are calling it a bubble.
Others are saying that it’s only going to go up from here. No one knows for sure what will happen with bitcoin. But one thing is for sure while this influx has led to substantial profits for many, it also has some potential downsides. Many people also see Bitcoin as digital gold because it is scarce and has been increasing in value for a while now. However, there are also several risks associated with investing in Bitcoin. These risks include:
1) Regulatory Uncertainty
One of the main downsides of waiting to invest in Bitcoin is regulatory uncertainty. Some countries have banned it, and others have made it legal. The US, for instance, has been slow to adopt a clear regulatory stance on digital currencies and this leads to uncertainty about digital currency use. This can discourage people from investing because they don’t know what the future holds.
We see that some countries have begun their crackdown on cryptocurrencies, while others like China seem to be enforcing the ban on cryptocurrency trading that they first enacted in September 2017. The major problem with this is that the number of people who feel discouraged by Bitcoin’s price fluctuations could make it difficult for Bitcoin adoption as a currency to take hold in any country – even if cryptocurrencies are eventually legalised there.
Some people argue that governments can’t stop Bitcoin and other cryptocurrencies because they’re decentralised while others say it will take time before any regulations are in place.
Some of the regulatory uncertainty will be resolved in the near future. This makes waiting for this bitcoin investment to be a good idea because it won’t be long before bitcoin will see an upsurge in its value again.
2) Price Volatility
Investing in Bitcoin is seen as substantially riskier and less liquid than traditional investments. This can be attributed to the volatile nature of Bitcoin prices. The fluctuation of Bitcoin prices are not as predictable as other financial assets such as stocks or fiat currency.
Bitcoin has been seen as a great investment, despite the volatility risks because it has outperformed many traditional investments over the last few years. However, that trend might not continue and if you need to sell bitcoin before its price goes up, you could get less money back than what you originally invested. The price of bitcoin can change dramatically between the time that readers of this article invest in it and the time they want to use it for purchases.
We buy a share of bitcoin because we believe its price will increase over time, and so we mitigate the risk posed by volatility by spreading our investment across a diverse portfolio.
Bitcoin is an exciting new asset in an emerging market that has grown in popularity, but it is still too early to tell whether Bitcoin will be a good investment.
3) Lack of Liquidity
People who buy Bitcoin at a high price and then wait for the price to increase are usually unable to prudently withdraw their investments in Bitcoin. Many of these people can’t sell their bitcoins even when they are willing to take a big hit in order to get out of an investment.
This is because most cryptocurrency exchanges don’t allow customers to trade bitcoin for fiat currencies like the US dollar, and even if they do, high trading fees will eat up any potential profit from the sale. Moreover, most cryptocurrency exchanges only offer very limited access to trading pairs that include bitcoin.
This volatility has made some people hesitant to invest in bitcoin. The biggest downside of waiting to invest in bitcoin is the lack of liquidity. This means that it can be difficult to sell your bitcoins when you want to.
4) Lack of Understanding
There is no reason to wait to invest in Bitcoin.
Bitcoin has been gaining more and more momentum in the world of finance and investing. That said, we should not forget that it has been around for 10 years already. Investing at this stage still poses some risks for newcomers, as there are not many reliable sources around to help them understand the pros and cons of investing in Bitcoin.
The downside of waiting to invest in Bitcoin is a lack of understanding. Most people do not understand how cryptocurrencies work, how they are created and distributed or the mechanisms that govern them. But there are many tools like Bitcoin Motion that help with making trading easier for even beginners.
All investments carry some level of risk, but it’s important to understand what those risks are before you dive head-first into something that could be catastrophic down the line.
5) Risk of Theft
The downside of waiting to invest in bitcoin is the risk of theft. The hacker could steal your private keys, allowing them to access your digital wallet.
Investing in bitcoin without storing it offline or on a cold storage device can be risky because it may get stolen by hackers.
There are a number of ways to store cryptocurrency, but one of the most important things to remember is that not storing it offline drastically increases the chances of losing it.
With all the security breaches in the past year, many people have been waiting to invest in Bitcoin until they feel it is safe enough. This wait can be risky and can lead to theft.
Some of the risks are:
1- Waiting could lead to a rise in value of Bitcoins which may not happen as there are other cryptocurrencies with more flexibility.
2- Bitcoin’s price might fall again, as seen at the start of 2018 after a successful run throughout 2017.
3- Theft due to hacking or viruses.
4- Identity theft due to one’s Bitcoin wallet being accessed illegally or stolen from one’s physical wallet.
Conclusion:
In conclusion, investing in bitcoins can be risky because of theft and volatility risks. But also due to its relatively unregulated status as a new currency and lack of intrinsic worth.
