It is no longer viable to simply hoard and “sit on” your money: unless you want your saving s to depreciate over time, you have to find a profitable outlet for them to accumulate value. Given the flaws in conventional financial apparatus demonstrated in the 2008 financial crisis, understandably, many people are considering alternatives to traditional government-issued currencies.
Cryptocurrencies have emerged in recent years as to meet the demand for alternatives to centrally- regulated (and therefore more easily-manipulated) units of exchange. Bitcoin is, arguably, the most widely accepted and most highly trusted of these. But, of course, these new, experimental modes of exchange are not risk-free. So, what are the risks posed by trading in Bitcoin?
Experimental phases risks
Bitcoin, and cryptocurrencies in general are still very new concepts and are still very much the developmental stage, despite their increasing popularity. As with any experimental method of conducting financial transactions, there is an inherent amount of risk arising from the fact that Bitcoin is untested and unprecedented as a unit of exchange.
Bitcoin is a high-risk and high-reward investment, meaning that it is not for conservative investors. Given the reflexivity of financial markets, there is a mutual causation between these two factors: the more high-risk an investment is, the less money conservative speculators invest. Conversely, less money conservative investors speculate, the more volatile the market becomes.
For these reasons, it is always wise to research various Bitcoin suppliers before investing your money. Luckily, there are a wide range of resources available online, such as this Deribit website review
Cryptocurrency trading, sadly, does not offer any consumer protection to traders, as transactions are not mediated via a third party, leaving investors no recourse for settling disputes if transactions go wrong. This is another inherent risk in trading in Bitcoins or any cryptocurrency, as none of these currencies are controlled by a central bank.
Another potential risk for investors is fraud. If a hacker or online fraudster gains access to your Bitcoin wallet, for instance by obtaining the key to your Bitcoin wallet, there are no protection measures in place, unlike customers of commercial high-street banks who enjoy protection against online fraud attack such as these.
In light of this, a Bitcoin investor must be incredibly diligent and scrupulous in attending to their own safety measures, given that they will have no higher authority to appeal to in case of criminal activity.
In summary, the defining characteristic of Bitcoin is the fact that it is not regulated by any central bank. This is the source of both its greatest strengths and its most apparent weaknesses. This lack of a central bank prevents exchange rates being set and manipulated by any powerful entity, and creates a more democratic and inclusive financial market in which power is more evenly distributed.
On the other hand, the lack of a central regulatory body also means that cryptocurrency transactions entail a much higher degree of risk, as markets for currencies whose value is not assured by a state are far more volatile and less likely to remain stable. Additionally, the lack of regulation means investors may be more vulnerable to fraudulent transactions.