The spectacular rise in the price of bitcoin and growing acceptance of it by the mainstream has attracted institutional investors to make investments in digital currencies. But there are many risks and challenges as well that come with investing in Bitcoin. Let’s read about some of those risks.
Loss of Demand
Both bitcoin and blockchain are relatively new in the financial ecosystem, but both the currency and technology are widely accepted. The usage and demand of bitcoin are obliged to technology on which it is dependent. Bitcoin and blockchain both need to gain the trust of first institutional investors and organizations. If we talk about technology and infrastructure, both are lagging, and multiple issues aren’t even linked to bitcoin or other cryptocurrencies. There’s a lack of bitcoin other than for investment purposes, which adds to the price and market volatility. This is also a great issue in trading bitcoin but you can trade bitcoin with online platforms Like the Crypto Genius software which is a great trading platform.
If we compare crypto assets to gold, gold is a great investment asset, but it is demanded more in jewelry. Also, bitcoin’s market is highly volatile to serve as both a store of value and a medium of exchange to a meaningful degree, which is why it is not widely used in crypto exchanges.
Price Volatility
The bitcoin market is extremely volatile, and therefore its price is vulnerable to wild swings. The crypto market is extremely sensitive to events, news, and developments made in the market, which causes volatile upswings and a drop in the price of digital currency. Bitcoin has the main purpose, and that is it is a transactional currency. The volatility of the price of bitcoin makes it harder to be used for exchange purposes for the sale and purchase of goods. You must have heard about the first transaction made by a man who purchases two pizzas for 10,000 bitcoins. Think about the price of 10,000 bitcoins by considering the price of bitcoin as of 2021.
Regulatory Risk
In the early days of bitcoin, there weren’t any regulations as bitcoin is a decentralized currency with no government interference. Also, the governments find bitcoin and other cryptocurrencies as a new market to impose any regulations on it. But today, almost all governments have imposed few regulations on the usage and trade of cryptocurrencies. Increased regulation on cryptocurrencies could have allegations for digital currency’s future use. Certainly, the government of some countries like China has even outlawed bitcoin and other cryptocurrencies. Talking about India, it is still restricting trade and the use of cryptocurrencies by putting some bans on it.
Even some crypto experts say that restrictions on cryptocurrencies and bitcoin in the world’s biggest money systems in the market are more likely to put off the mainstream use of digital currencies to replace traditional currencies. Additionally, some economies are also regulating cryptocurrencies like bitcoin as assets or commodities instead of regular money. Like in the US and Canada, the regulators are treating bitcoin and other cryptocurrencies as commodities, whereas Japan, Russian, and European Union have already declared bitcoin a viable form of currency.
Cybersecurity Risk
Digital currencies are vulnerable to cyberattacks by cybercriminals. Every day hackers come up with innovative ideas to hack wallets and exchanges, and hackers have caused the loss of millions of dollars of digital tokens like bitcoin. When Mt. Gox revealed about the hack of crypto exchange, it scared thousands of people, selling their bitcoins even at a lower price. Cybersecurity is the main risk that is associated with digital currencies. Also, the major issue is that no one can identify the hacker or know where the bitcoins went. This is all because of the unique feature of bitcoin, i.e., anonymity, which is a demerit and merit.
Even the established payment systems work on their systems and security measures to avoid fraud and attacks and provide a world-class experience to users.
Transaction Fee Risk
The bitcoin transactions are recorded in the distributed public ledger, and miners who charge fees for confirming the transactions must be verified before getting recorded. If miners demand high transaction fees, it will damp the attractiveness that bitcoin has for users. Most individuals and businesses are attracted to bitcoin because of its main feature of low-cost transactions.
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