How Risky Are Bitcoin And Other Cryptocurrencies For Investing In 2021
Investing in cryptocurrencies can either make you super-rich or can strip you of your last penny. Crypto assets generally come with a high-risk factor but also offer potential rewards. Investing in these digital assets is a good choice if you want to get direct exposure to the projects and businesses facilitated by cryptos.
Bitcoin is a cryptocurrency that can be used just like any common currency such as the dollar, rupee or pond. The only difference is that its transactions take place only in digital format. The first cryptocurrency came into circulation in the year 2009 as bitcoin. Today it is being used for global payment. This is probably why many developers and businesses have adopted bitcoin.
The cryptocurrency industry is touching new skies every day. In the last 6-7 months, its value has increased from $ 2,000 per bitcoin to $ 17186 per bitcoin. Surprisingly, according to the World Bank’s data, New Zealand’s economy, an agricultural and tourism-oriented country, is worth $ 185 billion. This is only about five billion dollars less than the capitalization of bitcoin. Its valuation is even higher than the economy of countries like Qatar, Kuwait and Hungary. Goldman Sachs and UBS, the world’s two largest capital banks, also have a lower value than Bitcoin.
Seeing the speed of growth of this virtual currency, the number of people attracted to it is also increasing continuously. However, do not get lured by its valuation because bitcoins can be a risky investment. Be careful if you are also planning to invest in bitcoin, as this decision can become fatal for you. This article will discuss how risky it can be to invest in bitcoin and other cryptocurrencies in 2021. Check out marketersmedia.com for more information.
7 Reasons Why Bitcoins And Cryptocurrencies are A Risky Investment
1. Security Breaches
The risks associated with cryptocurrencies are not as high as traditional financial markets, such as investments in stocks and bonds. However, cryptocurrencies are decentralized, and no government can exercise power over them. Also, the crypto exchange wallets have often fallen prey to hacks and other security breaches, which have led to a considerable loss of investors. Also, breaking into digital wallets is relatively easy. With some basic coding knowledge and a good internet connection, anyone can break into them and steal your coins.
Alternatively, some people prefer storing their coins in “cold storages”; yet, they have their own set of drawbacks. For example, if you lose the private keys, you will not access your assets.
Frauds and scams have become quite common in the bitcoin industry, and thus investing in cryptocurrencies in 2021 can be quite risky. Moreover, storing cryptocurrencies is not as easy as it is to keep bonds and stocks.
2. Still In Developing Stage
Cryptocurrencies are cutting-edge technologies, and while that makes them a good form of investment, it also increases the risk factor associated with them. This is because these technologies are still in the developing stage and have not proven their worth in real-life cases.
However, if you plan to make an early-stage investment, you should be prepared to deal with negative results. The veteran investors have predicted that a majority of the crypto projects will fail and become worthless in the future. Thus, investing in such projects will only strip you off your money. Accordingly to them, only a handful of projects will ultimately survive in this race. Also, if you are not an experienced investor, you will not be able to gauge the performance of a project in the future. However, even if you successfully invest in a winning scheme, it cannot be predicted whether these big wins will be enough to balance the numerous losses you will encounter due to investment in the failed projects.
3. Bitcoin Is Not A Limited Asset
Unlike gold and diamonds, which are limited resources, bitcoins are not scarce. Its programming dictates the token count of a bitcoin. It will not be a surprise if, in the future, the programmers, after seeing an overwhelming response from the public, decide to increase the token count. The programmers have created a perception that these digital assets are scarce when they are not. This is done so that people buy these coins at the earliest. It is nothing but a marketing gimmick.
4. Utility Issue
Bitcoin faces a utility issue, and to date, around 19 million tokens have been put in circulation. Around forty percent of these coins are possessed by small investors. Even after considering the concept of fractional ownership of these digital tokens, around 11 to 13 million tokens are predicted to get lost in circulation.
5. No Tangible Data Available
There exists no tangible way to find the valuation of bitcoins like any other asset. Say, for example, before buying some stocks and bonds of a public company, you can assess its balance sheet, income statements, listen to their recent business meeting etc. After checking all these factors, you make an informed choice. However, this is not the case with bitcoins. You will find no actual data available about these coins anywhere.
As mentioned above, no government regulates the trade of bitcoins. Also, governments of numerous countries have banned these digital coins. Being decentralized, you can trade bitcoins anonymously. However, this will land you in deep trouble in case something goes wrong.
7. Calculating Taxes Is Difficult
You need to pay taxes on the purchases you make using bitcoins. Say, for example, you bought a token priced at ten thousand dollars, and you used a fraction of the coin to buy a headphone priced at one thousand dollars. Then, you will have to calculate the market value of the coins used when making the transaction and then accordingly pay the taxes. Thus calculating taxes on bitcoins is a massive headache.
We hope that by now, you are aware of the risks involved with investing in bitcoins and cryptocurrencies in 2021. Consider all these factors and then make an informed choice.