One risk is bitcoin’s volatility.
Everyone is aware of how volatile bitcoin is, and those who invest in it will see its value fluctuate dramatically. Unless you can handle the ups and downs of bitcoin, investing in it is not for you. There is little to be gained if the loss of your capital causes you to sleepless. I cannot emphasize enough how important it is to use your discretionary spending money to invest in the cryptocurrency market.
What exactly is discretionary spending?
It refers to money spent on travel, dining out, entertainment, hobbies, and sports.
You would never spend your rent money or money set aside for retirement on entertainment such as a day at the races, so why should you use it to play the cryptocurrency market?
Two-Hacking is a risk.
a corporation known as “Cryptopia, an online bitcoin trading platform, held funds invested in Bitcoin. It was hacked, and all bitcoin investors with cryptopia lost their money. There were some heartbreaking stories about large sums of money lost by individuals.
It should go without saying that you should never gamble with cryptocurrency money that you cannot afford to lose, or put too many eggs in one basket, as many of these investors appear to have done.
Another point to mention is that the actual amount of money lost by cryptopia investors is likely to be grossly exaggerated due to the rising price of bitcoin. If someone invested $1,000 in bitcoin and it rose to $10,000 in a few years, only to lose the entire amount. It will be recorded that this person lost $10,000 when, in fact, they only lost $1,000.
Three threats—lost passwords
An Australian man is unable to access his bitcoin wallet because he cannot recall his password. If he makes ten failed login attempts, the website where he stores his bitcoin will permanently lock him out of his wallet. He’s made eight so far. He has more than $300,000 in his bitcoin wallet.
The lesson here is to write down your password and keep it in a secure location.
Another piece of advice is to diversify your portfolio so that if something goes horribly wrong, you don’t lose too much money all at once.
Risk four: government controls
Governments have the authority to prohibit cryptocurrency trading; China has done so. Several Chinese government agencies have joined forces to prohibit what they refer to as “”unlawful” cryptocurrency activity This is not to say that other countries will follow suit, but it does demonstrate that governments do have the authority to do so.
Taxation is a risk number five.
Death and taxes are the only certainties in life. You can be certain that the taxman will want a piece of your bitcoin pie at some point. Whether in the form of a Capital Gains Tax or a rise in the value of bitcoin. It should be noted that if you are taxed on your bitcoin’s capital gains, you may be able to claim tax relief on any capital losses. A good accountant will be able to help you with this.
Whatever form of capital gains you invest in, keep in mind that when there is the possibility of capital gains, there is also the possibility of capital loss. Investing in cryptocurrency is risky; therefore, it cannot be overstated that the funds you invest in bitcoin must be funds that you can afford to lose.