Are Bitcoins Safe to Invest In? 2022
Cryptocurrency investing is considered to be a bit more risky compared to stock market trading like Forex or other traditional investments platforms because of the volatile nature of these assets. It’s quite possible to get rich overnight by investing in the right cryptocurrency but it’s also possible to shrink your assets from thousands of dollars to meager cents.
Bitcoin (BTC) may be the first successful cryptocurrency but its success has ignited the launch of hundreds of different altcoins on the market, each with their own features and unique capabilities. Some of these altcoins include Ethereum (ETH), Litecoin (LTC) or Bitcoin-forked variants like Bitcoin Cash (BCH) and Bitcoin Classic (BCT). Regardless of the crypto asset in question, the risks associated with cryptos are more or less the same.
To put it plainly, investing in crypto can be risky but it can also turn out to be a profitable endeavor. In our article today, we’ll delve deeper into what Bitcoin investments are, how are they executed, what are the main risks, and more.
What Is Bitcoin?
Bitcoin (BTC) is a digital currency created in 2009 to provide an alternative online payment system to systems like PayPal and other bank-influenced payments methods. It’s stated in the Bitcoin white paper that the digital currency will provide users with total control over their assets, without any third-party interference, thanks to the payment transparency achieved by the blockchain. On top of that, you get lower transaction fees and more anonymity.
Bitcoin is a fully transparent digital currency independent from any central authorities like banks, financial institutions, and governments. Satoshi Nakamoto created Bitcoin as a result of the world economic crisis in 2008 when many people lost assets stored in banks and the effects from that crisis can still be felt today. Bitcoin has changed all of that as its price is determined mostly by its users and the whole community.
Other factors that can influence the price of Bitcoin include positive and negative media press, market supply and demand dynamics, competing cryptos, their use cases and more.
A Bitcoin investment can be easily defined as a fiat currency investment, whether in dollars or euros, which you make to purchase cryptocurrency like Bitcoin. There are many ways users can acquire Bitcoin but the most straightforward way is through a Bitcoin exchange. There are always risks when purchasing Bitcoin as the price is known to fluctuate wildly, resulting in thousands of dollars in loss.
This isn’t necessarily a bad thing as the value of Bitcoin regularly increases and decreases. When the price goes down, users take advantage of that and purchase it at a lower price, thus increasing the demand. When the demand increases, the prices go up as the total amount of mineable coins is limited to 21 million units. You can see the cycle Bitcoin is creating with price fluctuations.
If you’ve made up your mind to join the crypto game, there are factors you need to consider before going through with your decision.
Is Cryptocurrency a Good Investment?
Purchasing Bitcoin is not different from purchasing any other currency. Users must always be on the lookout for any price fluctuations, which are quite frequent with this asset class. The way that Bitcoin separates itself from traditional investment methods is that in order to store it, users will have to have a crypto wallet or trust a third-party platform to act as a storage device.
If users opt-out to store their own bitcoins, there is a chance they’ll lose them permanently in case the storage process isn’t completed properly. This can involve losing private keys, malware attacks, and more. We’ll address the storage methods further in the article. If users choose to trust a third-party platform to store their coins, there’s always the risk of hackers attacking that platform. The catch with crypto is that if it gets stolen or lost, chances are, it’s lost for good. This is especially true when compared to stocks or fiat currencies like the US dollar.
A great example would be a bank robbery. When a bank is robbed, users’ assets along with the bank are backed through the FDIC. This eliminates the risk for the bank account holders and the bank itself. Bitcoin, on the other hand, has a limited supply, and replacing stolen coins is a tricky, if not impossible endeavour.
If the third-party platform that holds your coins gets hacked, the platform may reimburse the stolen assets but technically, they are not legally obliged to execute this. However, the silver lining to this is that as a digital currency, Bitcoin isn’t prone to any inflations like government-issued currencies are. The more fiat money is printed, the less valuable it becomes and Bitcoin works the other way as the supply is limited. It grows more valuable over time.
Factors to Consider Before You Buy Bitcoin
To start off, we’ll say that the money invested in Bitcoin is not safe from any value fluctuations. In its most natural state, Bitcoin investing is a volatile activity. Users who are looking for guaranteed safety with maximized return profits should think twice before investing in Bitcoin or any other cryptocurrency. This is due to the nature of cryptocurrencies, which is very volatile.
Bitcoin’s price is known to fluctuate tens of thousand dollars in a timespan of a couple of months. It’s true that the price oftentimes manages to pull itself by its crypto bootstraps and return to approximately its original price before dropping but that’s not always the case.
Financial experts recommend beginner users to keep any crypto investments to less than 5% of their overall portfolio exactly because of the volatility. They also recommend having an emergency fund for fees and other types of unforeseen expenses before investing all of their money in crypto.
Aside from price fluctuations, the second most concerning factor about Bitcoin is security measures and fraud. Crypto crimes are increasing according to some data provided by the Federal Trade Commission.
Crypto crimes are associated with scammers that request payments for services in crypto. They can also come in the form of various scam offers to users who are required to send them crypto and receive a return profit within two weeks or a month, this can vary, but you get the idea. You can read a bit more about crypto crimes to get the full picture.
Users are encouraged to ignore any types of unsolicited offers related to cryptocurrencies and to purchase their digital assets from legitimate sources and regulated crypto exchanges such as Coinbase, Kraken, Binance, etc.
Additional Factors For Bitcoin Safety
Aside from scams, hackers, and cybercrime, there are additional ways Bitcoin’s safety could be compromised. We’ll address the influence that Bitcoin volatility can have on the average user.
When the prices of Bitcoin plummet randomly, most users would feel frightened that their hard-earned investment will be lost and start dumping or liquidating their assets on multiple exchanges in order to cash out their crypto as fast as they could.
This involves selling their assets at a lower price than which they’ve acquired and can also result in racking up fees from multiple exchanges due to the short period of liquidating crypto. Unfortunately, there is no silver lining around this because if users don’t sell their assets and the price keeps on falling, the result would be the same from both options.
An ailment for this is to quickly convert your digital asset to another via crypto conversion but there’s also no guarantee that the second chosen crypto will not be influenced by its own fluctuation or the fluctuation of the price of the original crypto.
Another method of losing crypto is the memory of the users. According to some blockchain technicians, approximately 20% of all BTC seem to have been permanently lost due to users’ bad memory of private keys. It’s of utmost importance to store your private keys in a secure place, preferably written on a piece of paper. We’ll follow up on this by addressing how to safely store your bitcoins.
How to Keep Bitcoin Safe
There are a couple of methods to keep your bitcoins safe and those include using software or hot wallets and hardware wallets or cold wallets.
Hacking attacks can access users’ wallets or even clean-out whole cryptocurrency exchanges with chinks in their security armour, so it’s very important to store your crypto in cryptocurrency exchanges with robust security systems and cold storage.
Crypto platforms usually offer their users digital wallets or mobile software wallets free of charge as a token of gratitude for choosing their platform to conduct their Bitcoin transactions. These wallets are susceptible to hacks and malware and are best suited for short-term crypto holding. Most cryptocurrency exchanges are not backed by the FDIC and if by any chance your coins are lost, you’ll probably never see them again.
The best method to maintain crypto safety is to choose cryptocurrency exchanges that are regulated and that offer cold storage security along with other industry-standard features like two-factor authentication (2FA), seed phrases and custom PIN codes. For the ultimate security, however, implementing a hardware wallet should be the best course of action.
Hardware wallets, or sometimes referred to as cold storage wallets are physical devices that are used to store users’ private keys in a constant offline mode of operation. Some of the best cryptocurrency products for offline crypto storage are the hardware devices produced by Ledger and Trezor.
Finally, the best method to safely store your cryptos is with a hybrid approach. This approach involves storing the bulk, or the larger amount of your crypto assets on a hardware cold storage wallet, and keeping a small portion of your crypto on your software wallet. You can then use the hot Bitcoin wallet similarly to a debit card for any day-to-day transactions.
According to some crypto analytics providers, the prices of Bitcoin will be on the rise further into the year. The price of Bitcoin is estimated to reach more than double its current value and everyday users can hardly afford to join this expensive crypto-game. The good news is that users don’t have to buy a full Bitcoin to be part of the crypto game. Almost every exchange platform offers bitcoins in fractions as low as $10 per trade. We’ll touch on this later.
Users can also opt-out to invest in blockchain technology development companies or cryptocurrency exchanges by buying shares in crypto. This is deemed as a safer method in the long run, as users will become a part of a given company by directly purchasing shares with fiat currency in exchange for crypto.
Risks Associated With Bitcoin Investments
When all is said and done, Bitcoin remains a risky endeavour for investing as its value is solely based on speculation and media influence. This is totally different from investing in company stocks where share prices fluctuate depending on the company’s performance.
In recent times, Bitcoin’s energy requirements have been causing a stir because of how much electricity is consumed by miners operating on the Bitcoin network. A large portion of the generated electricity comes from burning fossil fuels, which means that mining Bitcoin contributes to world pollution.
The electric car company Tesla accepted bitcoins as legitimate payment in the past but recently they have stopped due to the sheer hypocrisy of accepting Bitcoin as payment for a greener alternative for vehicles. Bitcoin mining demands lots of electricity and most of the planet’s electricity comes from burning coal or natural gasses that have a toxic effect on our environment. It seems that Tesla hadn’t foreseen this but we’re glad that they’re all green on every front. Their decision caused a significant drop in the price of Bitcoin.
Are There Risk-Free Ways to Invest in BTC?
To be blunt, no. But there are cryptocurrencies called stablecoins that have a value pegged to a fiat currency. Tether (USDT) is the world’s largest stablecoin that shares the same value as the US dollar in a one-to-one ratio.
The stablecoin Tether will never exceed in value and could provide a great backup cryptocurrency if you feel that Bitcoin’s price will fluctuate downwards. You can exchange Bitcoin to Tether on the crypto platform Paxful among others.
Should You Invest in Bitcoin?
Bitcoin’s popularity is constantly on the rise and crypto regulators are keeping the Bitcoin asset class insight due to the massive worldly adoption. There are many companies that publicly endorse and accept Bitcoin as a valid payment system. Some of those include Visa, Mastercard, and PayPal among others.
To buy or not to buy? that is the question. If you truly believe that cryptocurrency adoption will be increasingly widespread throughout the world, then it would be logical to try your hand at this new cryptocurrency market. Almost every indication leads to the same conclusion – cryptocurrencies are here to stay. Every year we hear about new inventions regarding cryptocurrencies such as new blockchains, greener alternatives to mining, and so much more. We’re certain the cryptocurrencies will stand the test of time and continue to provide users with a store-of-value system as well as a functional alternative payment system.
As we stated before, if the current price is too steep for you, the option to purchase crypto with stocks that you already have in your portfolio is always present. This can be a profitable investment but nowhere near as profitable as directly purchasing crypto and waiting out the right moment to sell for a higher price, or just holding it and using it as a payment system as many merchants and vendors accept Bitcoin as a legitimate payment currency. Alternatively, you can start purchasing Bitcoin in smaller amounts on a monthly basis.
How to Invest in Small Amounts of BTC
If you feel that Bitcoin is too expensive, the good news is that you don’t have to purchase a whole Bitcoin in order to be a part of the cryptocurrency trading scene. Various cryptocurrency exchanges offer purchasing fractions of Bitcoin, as low as 0.0000001 BTC. This unit of Bitcoin is honourably named a satoshi, the name of the creator of Bitcoin.
Cryptocurrency exchanges like Coinbase and Binance allow users to make weekly or monthly purchases of Bitcoin fractions with ease. There are fees for purchasing Bitcoin on these exchanges, so low amounts like $10 are not recommended because you will end up paying a higher fee than your initial deposit. Monthly purchases of $100 are deemed acceptable as, over the course of a year, you will have purchased $1,000 dollars worth of Bitcoin excluding the fees.
This is not a bad deal at all if you’re a beginner. As the price fluctuates, you can keep it in case the price goes down, and sell if the price goes up. This won’t be a large profit but it will provide you with a sense of how Bitcoin fluctuation works without staking large amounts of money.
A Few Words Before You Go...
Bitcoin investing comes with risks but the rewards to the risks can sometimes outweigh them. Of course, there are consequences for taking high risks such as losing all of your money or assets, but fortune favours the bold, as the poet Virgil would state.
If you wish to undertake any financial investments, the best course of action is to first consult with a financial expert before taking costly actions. Or if you feel comfortable with playing the crypto market, then go for it. When all is said and done, Bitcoin will remain a worthy financial investment along with the risks and rewards that are part of its ecosystem.
What remains for you now is to choose the right investing method – be it cryptocurrency exchanges, mining companies, crypto platform shares, or blockchain development companies.