When you acquire stock, you are purchasing a piece of the firm that is providing you with that stock. You are not just “investing,” You are owning a portion of that business. To feel comfortable about owning a share of the company; you should know how they earn money, what they are ready to offer, and how well they are doing in the market. The Bitcoin market works the same way, you won’t be comfortable until you know every detail about cryptocurrency. People tend to invest in cryptocurrency without researching enough about it and this leads to them losing their money. Here are the common pitfalls of bitcoins which can be avoided by taking some preventive measures:
1. It’s a Digital Currency
Bitcoins are reliant on technology, which makes it only viable for those people who know how to use the technology. These are digitally mined coins, traded through small wallets, and monitored via a variety of mechanisms. Cryptocurrency has no value without such technology. No actual collateral can back it up, Unlike other investments or Different countries’ currencies which are legally accepted all around the globe and we do have physical proof that we own those investments. You possess something like real estate, gold, mutual funds, or bonds which can be traded with something but that’s not how bitcoins work. Bitcoin owners are more subject to online fraud, cyber threats, and a system that may be shut down since it is based entirely on virtual technology.
2. Fluctuating and Volatile market
Bitcoins’ value fluctuates daily. Let’s say you bought one bitcoin for $7000 2 years ago. You tried selling bitcoin last year but you couldn’t because the price was lower than your expectations. The market of bitcoin is like a ripple effect which means it constantly moves back and forth. There is no way of knowing if you will get a return on your investment in such a volatile market. You have to take measures to keep a close check on the market to avoid huge losses. Make tiny investments, those investments will pay you in the long run.
3. Limited use
Bitcoins are not accepted legally by most businesses around the world. They could be our first step towards a change but the acceptance rate in business for bitcoins as a legitimate method of payment is limited. Currently, only a few retailers accept bitcoin trades, such as Monoprix, Overstock, Gocoin, and Newegg. These coins can also be used to book flights with only certain agencies like Air Lituanica and CheapAir.com. Unfortunately, many businesses refused to accept bitcoin as a legal currency.
4. All eggs in one basket
One of the common mistakes made by newcomers in investing. When it comes to cryptocurrencies it’s a good idea to diversify your assets over several varieties of schemes. Investing a lot of money into one whole coin might jeopardize your fortune and future investment goals. Portfolio diversification is a tried-and-true approach for reducing the chance of a significant loss. New investors usually feel that any decrease in the coin’s price is an opportunity to acquire. They also believe that buying during a low market is a smart technique to take advantage of before the prices rise too far. At this point, investors are at significant risk of losing their money as it’s critical to understand the reason behind the price drop.
5. New Technology
Cryptocurrency is still a relatively new concept. Bitcoin was created nearly 10 years ago and has yet to become a viable currency. With the changing world, it’s possible to predict how the industry will develop. Bitcoin, In its current form, will become obsolete in the future. With care and through diligence, is the best way to handle this new investment. Take necessary precautions to protect your assets and prepare yourself for the market’s future.
6. Risk of Loss
If a hard disc crashes or a virus corrupts records, bitcoins are basically “gone.” These coins will be orphaned in the scheme for the rest of the time. This can bankrupt a wealthy Bitcoin investment in a matter of seconds, leaving them with no way out. The investor’s coins will remain orphaned for the rest of their lives. There are no safeguards in place to protect your bitcoins from technological or human blunders. There are chances of losing all your bitcoins if you don’t organize and check your wallet regularly. You can prevent losing your bitcoin by backing up your wallet with a backup phrase code, this will help you to keep your investment safe.
7. Negligence can cause theft or loss
The whole content of the digital wallet can be stolen if the hackers get access to the private secret key of the investor. There have been instances where bitcoin users have lost their access to their private secret keys and hence losing their bitcoin wallets because of their ignorance. Furthermore, the computer’s hard disc, on which the cryptocurrency information is saved, may fail in a little way, resulting in the erasure of the key file due to the inconvenient movement. You should speak with blockchain firms to employ blockchain engineers before investing in blockchain technology.
The bitcoin market is rife with fraud, in addition to hacking. Bitcoins are being traded online by buyers and sellers, but because their popularity has grown, some of these exchanges have become fraudulent. The Consumer Financial Protection Bureau and the Securities and Exchange Commission have issued warnings about these transactions, in which naïve investors are defrauded of their bitcoins through fraudulent trades. For investors, this lack of security is a significant risk. While technologies have been developed to address these issues, security continues to be a major concern.
9. Before you buy, plan your exit strategy
Purchasing any asset, especially a digital coin, without a strategy of exit might be disastrous. To achieve your core aims, you must have your stop losses in place and a conceptual framework laid out ahead of time. If the market climate continues to deteriorate, it is impossible to allow losses to accumulate. Exit strategies aid investors in avoiding large losses.
On the other side, even if you win the bet, you should always have an escape strategy in place. Investors who do not have a thorough understanding of market psychology may lose money if they do not sell on the increase owing to anticipation of continued price increases. Knowing when to sell and when not to sell is the greatest way to maximize profits or minimize losses.
There are many pitfalls in the way of investing in bitcoin. These were a few of the measures you should keep in mind and do your best to take precautions before putting your money on any scheme.