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Bitcoin is a digital currency that has taken the world by storm. Due to its decentralized nature and its use for anonymous transactions, many people are drawn to it as an investment opportunity. However, there are several risks associated with Bitcoin that you need to be aware of before investing in it. This blog post will discuss the top risks associated with Bitcoin.
Let’s take a look at these risks.
Price fluctuation
Bitcoin is currently trading at around $6,700. It saw a price of over $19,000 before the beginning of 2018, but it also experienced lows under $5,000. As you can see, Bitcoin’s value fluctuates significantly and rapidly. If you consider joining Team Bitcoin or want to buy some yourself, keep in mind that your money could be worth half as much next week (or less). By the end of 2021 alone, Bitcoin had lost 40% of its value.
A rapid decrease like this causes great concern for many financial experts. For one thing, investors do not have an incentive to hold on to their Bitcoins when they know the currency will continue losing value quickly. If you want to trade with minimal risk, you must choose the right exchange platform like Crypto Genius.
Liquidity risk
Liquidity risk is the risk that investors will not be able to buy or sell an asset, either because there are no willing buyers or sellers or because they must offer a price that differs significantly from the last traded price. People who want to protect themselves against liquidity risks should diversify their portfolios across different cryptocurrencies.
“Investors are currently putting money into bitcoin for several reasons,” says Charles Hayter, chief executive officer and founder of CryptoCompare. “The main reason people are buying bitcoin is because it’s rising in price.” However, he adds that this brings another concern: “You have to have enough conviction that the rise in value won’t just stop.”
Hacking Risk
Bitcoin can be stolen or lost. If your Bitcoin is stored on an exchange, then the operator of that exchange is responsible for protecting them. Exchanges have been hacked before, so this risk is not negligible. If you have substantial money invested in bitcoin, consider using cold storage to protect it.
This means storing your private key on a device that’s not connected to the internet. Think of cold storage as your savings account – you don’t keep all your cash readily available in it at all times, just enough for day-to-day activities.
Cryptocurrency Network Risk
Bitcoin operates on a network of computers that anyone can join. These people and companies are called miners because they earn new bitcoins by using special software to approve transactions and create new bitcoins. The network is designed to automatically reduce the supply of new coins until the maximum number (21 million) has been reached sometime around 2040.
The Bottom Line
The development and rise of bitcoin have brought with it many potential risks. Investors need to understand these risks before buying or selling bitcoins, as the value of bitcoins can go up and down.
