Bitcoin can be a wise investment, but it’s also a volatile one. When it comes to “safe” investments, bitcoin and other cryptocurrencies are a good bet—but only if you’re willing to take a lot of risks. Yes, crypto is here to stay and the price of bitcoin is not going to “go to zero” as many early skeptics predicted. But the price of a Bitcoin has swung from $30,000 to $60,000 in the last three months alone. Other, lesser cryptocurrencies are even more volatile than Bitcoin.
As a result, investment experts generally advise limiting any cryptocurrency purchases to under 5% of your portfolio—and ensuring you have a good conventional retirement investment strategy in place first. Before investing in bitcoin or any other cryptocurrency, you should establish an emergency fund and pay off any high-interest loans.
Many individuals are concerned about hacking and fraud when it comes to bitcoin investing, as with any other digital investment. According to data from the Federal Trade Commission, crimes involving cryptocurrency resulted in a median loss of $1,900 in the last two years.
While bitcoin and many other cryptocurrencies are established and legitimate, many new initial coin offerings (ICOs) are bogus. An ICO is when a cryptocurrency is first offered to investors before it goes public. However, new coin offerings can often be faked, leading investors to place their money in a cryptocurrency that doesn’t exist in reality.
Before investing in any cryptocurrency, do your homework. What appears to be an unbelievably high return can very likely be a scam. The project’s white paper is a good place to begin your investigation.
Avoid “Pump and Dump” Schemes
Some small groups of investors may artificially inflate a coin price and convince smaller investors to invest in the coin. The initial investors then sell their shares at a profit before the price falls. Traditional investments like stocks are also susceptible to this type of strategy. If a coin’s ROI sounds too good to be true, it probably is. Be wary of cryptocurrencies whose value has skyrocketed for no apparent reason. They fall as they rise.
How to Keep Your Bitcoin Safe
Even hot wallets offered by cryptocurrency exchanges and third parties to store your funds are still susceptible to hacking. The Federal Deposit Insurance Corporation (FDIC) does not guarantee cryptocurrency held on an exchange or in a wallet. Ensure the cryptocurrency trading platforms you are using offer rigorous security measures, including two-factor authentication for customers, and are retaining a considerable portion of their holdings in cold storage. In the event of theft or hacking, certain exchanges may even offer private insurance policies.
Generally, look before you leap – and invest in offline cold storage that is not connected to the internet, comparable to a USB drive, to keep your assets safe. Your password should be kept in a place where you won’t lose it. Investing in bitcoin will be more secure if you meet all of these criteria.