Which Are The Risks of Investing In Bitcoin?
Bitcoin has been calling the attention of several investors since it has shielded important returns in the past. Some experts call Bitcoin digital gold and believe that its price would increase in the future.
However, investing in bitcoin has its risks. Ted Jenkin, CEO at Oxygen Financial said that Bitcoin is a risky asset.
Due to the fact that Bitcoin (BTC) is a peer-to-peer digital payment system, it does not have a government or central authority. This means that if an investor lost money, he would have a difficult situation to recover what he lost.
Jenkin says that if there is an attack and someone steals the funds of a user, then, there is no place or institution where to go and complain about this situation. Several attacks took place in the space generating important losses for cryptocurrency exchanges and investors.
Additionally, he says that it could be a problem to report taxes from profits related to virtual currencies.
If a person invests a certain amount in Bitcoin and registers an important profit, then, that person would have to report the profits it had to the IRS and pay the necessary taxes.
“If you don’t, you still run yourself subject to the risk that if you get audited and somebody finds out that you did make money, you could cause yourself a larger problem down the road.”
Furthermore, Bitcoin and other virtual currencies are still in their early days. That means that these forms of payment do still have to become mainstream. It is not possible to use them in major retailers or shops.
Cryptocurrencies could be a great way to diversify portfolios at the moment of planifying investments for the future. Some experts believe that holding 1% to 5% in virtual currencies is a good option. If all the other investments were negative, this small percentage invested in cryptos could make the difference.
However, it is also advised not to invest more than what investors are able to lose. Bitcoin and other digital assets are very volatile and their price can fluctuate even 20% in just one day.
Since its all time high, Bitcoin lost over 65% of its value, while other virtual currencies registered losses of over 90%. However, Bitcoin is still operating 5x higher than at the beginning of 2017, being one of the most profitable investments in the financial market.
At the moment of writing, Bitcoin is being traded around $6,400 dollars and has a market capitalization of $111 billion dollars.