Bitcoin: Are Potential Profits Worth the Risks?
While risk is a natural part of any investment, cryptocurrency, such as Bitcoin, carries risks beyond the conventional concerns. Primarily, a Bitcoin investor plays a significant role in the security of their investment, meaning their level of responsibility is different from more traditional investments. Before you invest in Bitcoin or any cryptocurrency, it is wise to research and thoroughly vet the opportunity because of the increased and inherent risks of the market.
Volatility and Bitcoin’s History
Bitcoin became a popular topic in investment circles again when, in December 2020, it broke the barrier of $20,000, continuing to climb in a historical bull run to more than $64,000. However, as it had done in the past, the spot price fell quickly, and by June, it was below $32,000.
Long-term investors understand the violent ebb and flow of their investment. A similar — if not more volatile — event occurred in December 2017, with the spot price nearing $20,000 before dropping below $3,400 a mere year later.
Investing in Bitcoin is not for the faint of heart. Cryptocurrency is a volatile market, but with wise investment strategies and knowing when to get out, the market can prove lucrative for some savvy investors.
Keep Your Private Key Safe and Private
Unlike mutual funds, stocks, and bonds, Bitcoin investments are not as accessible, and they have their own security protocols. The primary security “key” is your password to your digital wallet. You want to ensure you can find your key, but don’t let anyone else access it. Theft is a significant problem with Bitcoin and other cryptocurrencies, as is loss.
In early 2021, there were multiple stories of Bitcoin millionaires who lost their personal keys. One particularly jarring account was a German-born programmer who could no longer access his Bitcoin stash of nearly $220 million. Do not lose your key if you decide to invest in Bitcoin.
Cold Storage Versus Hot Storage
If you are concerned with online theft, consider transferring your Bitcoin offline to a secure device. An online or digital wallet is considered “hot” storage or a “hot” wallet. Cold storage refers to an external storage device, similar to a USB drive. A cold storage device will cost between $100 and $200, and it is more secure than digital platforms in some respects.
However, instead of keeping a password safe, you now have to protect a physical device. Many investors have lost their Bitcoin investment because they were lax with the cold storage device. In fact, an investor from Wales accidentally disposed of a drive with 7,500 bitcoin, currently worth $363,651,000.
To prevent the loss of Bitcoin, many providers are no longer allowing the cryptocurrency to be transferred off-platform, including PayPal, SoFi, and Robinhood. Again, Bitcoin requires investors to be actively involved in the security of their investment, which in itself is a risk.
Scams Are on the Rise
Unfortunately, Bitcoin is becoming more attractive to criminals. According to the Federal Trade Commission, nearly 7,000 people lost $80,000,000 to Bitcoin scams. Most people were taken by con artists claiming quick gains. People also get conned by phishing schemes, where an email appears to come directly from a cryptocurrency exchange.
Investing in Bitcoin is risky, often too risky for most investors. If you want to try your luck with this volatile market, work with legitimate and recognized brokers.
What do you think? Will you go for it? Leave a comment.