The Biggest Risks Of Investing In Bitcoin

greg khojikian is the founder and CEO of gff brokers. he has over 20 years of experience in the futures and forex industry.


Reading: Is bitcoin risky

It’s 2021 and bitcoin is exploding. It seems like everyone around you is getting rich and you’re missing out. it’s time to rebalance your portfolio and turn it all into crypto, that’s what you think.

This may not be true, but it sure seems true today. look at all the big corporations, for example, tesla, that invest in bitcoin. The “original cryptocurrency” has been a hot topic for a while in the financial world, but the economic uncertainty that has come along with the covid-19 pandemic has accelerated the bitcoin hype.

On March 13, 2021, bitcoin hit an all-time high of over $60,000. on the last day of 2020, it was trading at less than half that price. While this surge has been a boon to those who invested, like Elon Musk and the NFL player who received his salary in bitcoin, it doesn’t mean that bitcoin is the right trade or investment for everyone.

As the CEO of a commodity and futures brokerage firm, I am well aware of the risks associated with bitcoin, both in the short and long term. While some investors may continue to make a profit, others, especially those entering now, stand just as much chance of losing it all. these are the biggest risks of investing in bitcoin.

See also: 8 claves para entender el uso del Bitcoin en El Salvador

Bitcoin remains incredibly volatile.

the price of bitcoin, and all cryptocurrencies, is incredibly volatile because it is a very young currency and market. It is not uncommon for the bitcoin price to experience wild swings within a day or even minutes. this makes trading a dangerous business. fundamentals would generally support currencies across the board. but bitcoin is not a fully functioning currency, and its “fundamentals” are still emerging.

As a long-term investment, it is instructive to look at the previous all-time high. This happened in December 2017 when bitcoin broke through the $20,000 mark. That may sound tempting now that bitcoin is regularly trading above $50,000, but when you look back a short time later, in February 2018, the price had dropped below $7,000. chances are that this precipitous drop could easily happen again.

Bitcoin is not money.

Another reason bitcoin is so risky is that it is a tradable asset but not backed by anything. bitcoin has value only because the people who trade it say it has value. there are no governments or regulatory bodies to help bitcoin retain its value. the value is basically “invented”, for lack of a better word. To put it another way, as super investor Warren Buffett did, “[Bitcoin] has no unique value.” this makes it an incredibly risky investment if the market decides it’s no longer valuable.

Bitcoin is not as disaster resistant as people think.

See also: How to Mine Bitcoin Remotely, From Expert Who Earns up to 190 Daily

One of the biggest arguments for investing in bitcoin during and after the pandemic is that it is a great hedge against fiat currency, national banks, or even the entire financial system, should it fail. The pandemic made these scenarios seem more plausible than ever, but to think that bitcoin will be your lifeline in these situations is probably false.

If fiat currencies or traditional financial systems ever fail, governments and central banks would respond by holding tangible assets like gold in vaults as an alternative, not cryptocurrencies like bitcoin. furthermore, if the crash went even further and brought down technology, power grids, or even the entire internet, how would you access your bitcoin then? is something to think about when you hear that bitcoin is the best way to protect yourself from future disasters.

In the end, it’s about risk and your willingness to accept both profit and loss.

As a futures trader, you can at least be sure that the futures markets that are traded on exchanges are regulated. if you have a dispute, you will have a due process hearing. if you walk out of this world into the decentralized and unregulated world of cryptocurrencies, you might be on your own. maybe you’re willing to take that risk. if so, then it’s important to fully understand what you’re getting into, not just what you stand to gain, but everything you stand to lose.

greg khojikian is a member of the nfa and is subject to nfa regulatory oversight and review. However, NFA has no regulatory oversight authority over spot or underlying virtual currency products or transactions or virtual currency exchanges, custodians or markets. Read the full NFA advisory here.

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See also: Better Buy: Bitcoin vs. Cardano | The Motley Fool

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