September 19, 2021
  • September 19, 2021

Main risks of Bitcoin investments

By on August 11, 2021 0

It’s no secret that the value of Bitcoin continues to rise. And it caught the attention of many people, with almost everyone looking for ways to make money with Bitcoin. Ideally, no one wants to miss out on Bitcoin investments. Some people think it’s a good time to rebalance their wallets, and Bitcoin provides the best new addition to their assets.

Even big companies like Tesla are investing in this virtual currency. Bitcoin is currently a hot topic due to the many people and organizations expressing interest in it. Perhaps the Covid-19 pandemic has played a significant role in improving the popularity of Bitcoin. Today, many people invest in this virtual currency after realizing that global pandemics might not negatively affect its value.

As of March 13, 2021, this virtual currency has reached its all-time high of over $ 60,000. Towards the end of 2020, people were buying Bitcoin for less than half that price. Without a doubt, this spike prompted many people to buy Bitcoin on platforms like Bitcoin Champion. After purchasing this cryptocurrency, you can exchange it on the same platform or transfer the tokens to your digital wallet. Maybe you can check one of the best automated trading software for more details.

However, investing in Bitcoin is arguably not without risk. A Bitcoin investment faces both long term and short term risks. Some investors might profit from their investments while others would lose. Here are the main dangers of Bitcoin investments that you should know about.

Bitcoin is incredibly volatile
The price of Bitcoin is incredibly volatile because it is a young asset. The crypto market is new to most people, and it is not uncommon for Bitcoin prices to experience crazy swings in a day or hours. Therefore, Bitcoin trading could be a dangerous business for some people. However, Bitcoin is a functional currency with emerging fundamentals.
Before investing in Bitcoin, consider the previous record price. Understand the factors that cause price fluctuations. In this way, you can determine the most suitable time to invest in Bitcoin.

Bitcoin is not the same as conventional money
Being a tradable asset makes Bitcoin a risky investment. Ideally, this virtual currency is not backed by a tangible asset. The value of Bitcoin depends on the agreement of traders that it is worth certain amounts. No regulatory body or government is helping Bitcoin to hold its price or value. This property makes Bitcoin a risky investment for some investors because the market may decide that the cryptocurrency has no value.

Bitcoin and disaster
Some people argue that Bitcoin is a disaster proof investment. This is because it has retained its value during and after the Covid-19 pandemic. Therefore, some people invest in it to hedge against inflation or fiat money, in the event of a financial system failure. But, seeing Bitcoin as a disaster-proof asset is wrong.

If the traditional financial system or fiat currencies fail, central banks and governments could hold tangible assets in coffers as an alternative. Thus, they may not consider Bitcoin and other virtual currencies.
Additionally, if fiat currencies or conventional financial systems continue to collapse, it would affect the internet, power grids, and the technology behind Bitcoin. This means that Bitcoin is not entirely disaster proof.

Final thoughts
Before investing in an asset, people think about the risks and rewards. And investing in Bitcoin is no different. After all, investing is more about taking risks. And an investment with a higher risk has a higher potential for better gains. Therefore, consider Bitcoin as a relatively new investment with the potential to expand the market.
Additionally, Bitcoin and other virtual currencies are in the development stage. And some people don’t know much about these virtual currencies. Therefore, take your time to understand how Bitcoin and the technology behind it work before investing.