Cryptocurrency has grown exponentially since its inception in 2009, with the first of its kind, Bitcoin. Though it caught on like wildfire and today’s rates for Bitcoin have shot up exponentially, it’s still a fairly new market, and with that comes many questions over-investing in Bitcoin versus stocks and bonds.
I have always heard that there is a risk with any investment and markets fluctuate daily, so there is no such thing as a safe bet. So, how great of a risk is required when dealing with Bitcoin?
No, I can not lose more than I invest in bitcoin. I can lose the entire amount I invested if the BTC drops to $0, which is extremely unlikely. In fact, according to two Yale University economists, who published a paper on the subject, the likelihood falls between 0% to 1.3%.
Despite not losing more than I invested, there are other ways in which I can lose money with Bitcoin that are worth investigating to protect my investments.
After all, the more educated I am on the crypto market, the better chances I have of keeping my money. Keep reading to discover more about investing in Bitcoin
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How Do You Lose Money with Bitcoin?
The best way to ensure that my investment is secure and continuing to grow is to educate myself and make smarter moves when it comes to investing and trading Bitcoin.
There is a wealth of knowledge and information readily available to the general public to not only become well-informed, but skilled at the Bitcoin game. This information is accessible to everyone, I do not need to be an economist, broker, or banker to understand it.
Still, people have lost money with bitcoin and lived to write about it on an internet forum, in order to help others avoid the pitfalls they fell into. There are three common ways in which I could lose money with Bitcoin.
- Getting Hacked
- Getting Scammed
- Trading When Down
Again, there is always a less than 2% chance that Bitcoin could drop to zero. There are the naysayers who believe so with arguments that cryptocurrency is backed by nothing, but the same could be said of our current U.S. Currency that was once backed by gold, but is now back by nothing but debt.
I would love to say that hacking Bitcoin wallets and clearing them out is not a reality that anyone wanting to invest would have to be leary of, but unfortunately, I can’t.
Anything digital has the potential to be hacked, even with safeguards in place. Cybersecurity reduces the threats of cyber crimes and cyber fraud, it does not eliminate them entirely.
Hackers have become proficient at cracking into electronic wallets and will continue to improve their skills through the years, especially as cryptocurrency becomes more widely used.
That does not mean that additional protections can’t be taken to protect investors, but at the moment, hackers are the biggest threat.
Unfortunately, the short end of the stick with hackers comes with recovery. Once the money in the electronic wallet has been wiped out, there is no way of recovering it.
Unlike a bank that will allow you to submit a fraud claim, which they then will investigate and return your money, there is no such institution or federal reserve when it comes to cryptocurrency.
In other words, your funds are not insured.
Just like with phishing phone calls or emails claiming I’ve won a sweepstake or owe money to the IRS and a warrant is out for my arrest, Bitcoin has its own scams.
Fraudsters claim to want to help or promise riches and then take money from investors in one fell swoop. Again, as the popularity of cryptocurrency grows so too will scammers looking at investors like they have targets on their backs.
As of May 2021, the Federal Trade Commission reported a loss of over $80 million in cryptocurrency scams alone since October 2020. That number has risen ten-fold from previous years on a year-by-year basis.
Luckily, with internet platforms and forums, people are able to tell their stories and awareness has spread over the more common scams.
- Digital Collectibles and/or Games
- Investment Schemes
- Phishing Scams
- Romance Scams
- Crypto-Only Payments
- Fake Identities
Looking into the characteristics of each one of these scams will tell me what to look out for and steer clear of to protect my BTC.
Just like with any other investment trading, markets can sometimes be unpredictable and numbers can fluctuate at a moment’s notice. That is the nature of the game.
Even seasoned traders can lose money in what is considered by many to be a volatile market. A simple search engine inquiry will tell me what pitfalls to avoid, like day trading or selling on the margins.
In addition to learning about trading shortcomings, the recommendation is to start small, $50 is enough to wet my feet. There are also simulators that I can utilize to familiarize myself with the mechanics of trading in the Crypto market.
The more comfortable I become, the more confident I can feel making further and larger investments. Using simulators will teach me how to recognize chart trends and patterns.
Overall, how to trade in a more timely and intelligent fashion. These simulators are available for download online and are able to tackle any level of inexperience.
Hearing about some of the pitfalls of trading cryptocurrency, more specifically Bitcoin can disenchant even the bravest of souls, but it just takes patience and education to get in the Crypto game with confidence.
I have peace of mind now knowing where to start in educating myself and taking my time in learning and growing in confidence to take bigger risks the more knowledge I gain.
I also know what potential threats to look for and how to protect myself and my investment. All that is left is to take the plunge with the understanding that risk is always a factor and fear serves no one.
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