Since its introduction to the market, Bitcoin has been on a roller-coaster ride, sending a warning sign for prospective investors who want to invest their money in this highly speculative and volatile cryptocurrency. In 2021, the coin set an all-time high, almost hitting $50,000 per coin in January.
While this makes Bitcoin look like a lucrative investment opportunity, there are a few things that you should know before making your investment. Read on for more information.
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Do lots of research
Recently, billionaire investor Paul Tudor Jones said that Bitcoin is his top gamble for a cushion against post-COVID inflation. However, most investors don’t have many details about Bitcoin, or cryptocurrencies—apart from what they read on different posts.
Bitcoin, which is the first type of cryptocurrency, is a type of digital currency developed by an anonymous founder back in 2009. With that, it’s important to note that cryptos, including Bitcoin, are not managed by a public agency or back. Rather, all cryptocurrency token transactions are recorded on a public blockchain, which comprises digital information kept in a database. Thus, the future of Bitcoin remains uncertain. The coins or tokens used in a decentralized network aren’t the same as shares of a company.
Bitcoin is very unstable and unpredictable
The experts from Stokr, a security token offering platform say that Bitcoin is highly unpredictable, although it’s used as a common investment method. This shows that the value of Bitcoins can vary from time to time, meaning investing in Bitcoin can be challenging at certain times.
Therefore, in case you want your Bitcoin investment to succeed, you need to do a lot of research to get insights into its unpredictability as well as risks. Hence, the money that you invest in Bitcoin should be an amount that you are willing to lose to avoid disappointments in the future. Moreover, you need to set a reasonable return target when investing in Bitcoin.
Bitcoin is not currency
Yes, in the United States, the Internal Revenue Service (IRS) doesn’t consider cryptocurrency to be a currency, but property. Thus, the tax regulations that govern investing in property also apply to those investing in cryptocurrency. According to Elwood, a partner at Philadelphia law firm, Practus, the ruling has imposed far-reaching record-keeping regulations, and the IRS has made the enforcement of cryptocurrency taxes a priority, with high penalties.
Therefore, any transactions in taxable accounts should go ahead only if you are willing to handle the record-keeping burden. If the Virtual Currency Tax Fairness Act of 2020 is enacted, it will encourage more and more cryptocurrency transactions since taxes will be applicable on cryptocurrency if the transaction benefit is higher than $200.
This will allow people to pay for fewer purchases with Bitcoin. With that said, it’s important to note that Bitcoins stored in retirement accounts are not affected by this act, just like the other assets held in these accounts.
Bitcoin can vanish
Blockchain has become common with several financial institutions, as well as other users. And, since Bitcoins, and other cryptocurrencies are virtual, and don’t have a centralized stockroom, your account balance can vanish.
For instance, if a computer crashes without a backup, your stash of cryptocurrencies can be destroyed. Also, if you lose your private key to your wallet, you will not be able to recover the cryptocurrency you own. Besides, scammers can hijack your mobile account through impersonation. Now, they will contact your mobile carrier, and ask for your SIM card to be transferred to another device. This allows scammers to access your cryptocurrency accounts.
Because of this, Bitcoin investors must monitor their private keys, and use wallets from authentic firms. Also, professionals advise cryptocurrency investors to back up their private keys and use strong passwords.
Don’t leave a lot of cash in exchanges
The growth of technology and modern innovations has made popular cryptocurrency exchange platforms vulnerable to hacking. Thus, all your investment can vanish within a few seconds. Also, even when you use the most reliable and safest passwords, they can fail to protect your account and funds from hackers.
Therefore, if you want to be on the safe side, be careful with the amount you invest. Furthermore, you should avoid making large exchanges on any exchange platform. And, if you don’t want to make a large gamble, avoid leaving your Bitcoins lying in your wallet for long periods.
Timing is essential
Now, once you establish your footing in the cryptocurrency industry, and have identified projects to invest in after doing lots of research, the next thing to do is to time the investment. One thing with cryptocurrencies is that they move very fast and they are highly volatile.
Thus, buying into a brand new cryptocurrency before it becomes popular in value can prompt other investors to move rapidly. In reality, you are likely to succeed if you observe the industry before investing. With that, it’s important to note that cryptocurrencies have a tendency of following certain price patterns.
Bitcoin is the most popular cryptocurrency, and all other cryptocurrencies tend to follow its general course. Any information about fraud, exchange hack, or price manipulation is bound to cause lots of uncertainties in the cryptocurrency world. Therefore, it’s essential to monitor all the activities in the industry. Lastly, remember that cryptocurrencies are very speculative, and investing in this industry is taking a huge risk. Thus, you need to do your homework before investing if you want to succeed.