Bitcoin trading is a lucrative venture when done right. Transactions are easy, and the trade is anonymous. Furthermore, cryptocurrency trading can generate outsized returns, alongside giving an edge against inflation.
But, there is one thing that most financial advisors don’t tell you—trading bitcoin is super risky. You can lose the digital currency mysteriously, scammers can hack your wallet, or a wrong speculative bet can wipe your investment in minutes.
Therefore, you will have to keep your antenna up when trading, lest you fail. Assuming this is the first time you are getting into crypto trading and you don’t wish to make costly mistakes, the following are the most common risks to watch out for.
5 Risks in Bitcoin Trading
1. It is highly volatile
Like many cryptocurrencies, bitcoin is highly volatile. That means its value shifts rapidly from time to time. At one moment, the value will be high enough to generate a good profit, and in the next minute, the value will plunge.
The rapid fluctuations in value are due to a change in government regulations, market rumors, and media hypes. Furthermore, the volatility results from increased supply or demand and other unforeseen market forces.
Therefore, it would matter to keep tracking changes in market forces before placing your speculative bet. Go short (sell) whenever you think the prices will fall. Go long (buy) whenever you think prices will rise.
Avoid trading before you do a thorough technical analysis of the cryptocurrency market at all costs.
2. Unregulated trading platforms
Crypto exchanges and trading platforms lack a centralized regulator. For that reason, unscrupulous people have used the lack of regulation to set up platforms that rip off unsuspecting traders.
They charge exorbitant trading fees, offer fraudulent coins, and manipulate the value of bitcoin to their advantage. Also, some less reputable platforms might make it nearly impossible to withdraw proceeds, and the sites could be vulnerable to hacking.
For that reason, before joining any trading platform, it would be upon you to do some due diligence. A simple online search will help you know if you are dealing with a reputable or illegitimate trading platform.
3. The digital currency is decentralized
Many digital currencies, bitcoin included, are decentralized. That means there are no government institutions regulating these digital currencies. While decentralization keeps investors off the hook of authorities, it attracts a fair share of issues.
For instance, the lack of decentralization exposes investors to criminals. No one will protect you from a criminal trying to manipulate the market or hack into your wallet. As well, the lack of decentralization makes the coin more volatile.
So, when trading, take charge of your security. Avoid scammers and potentially manipulative platforms. Always invest what you can afford to lose. That way, when tragedy strikes, you won’t lose a lifetime investment.
4. Trading exposes you to cybercrime
Criminal organizations are always searching for weak links to empty your cryptocurrency wallet. So, if you are not careful, the proceeds you get from trading could disappear mysteriously.
To make it worse, cyber-attacks associated with cryptocurrency are entirely anonymous. For that reason, you will hardly recover your lost cash once fraudsters empty your wallet. Not even legal agencies will help.
Fortunately, you can protect your crypto from these malicious people. Trade on reputable sites with excellent security covers, keep your password safe, use a secure internet connection, and avoid suspicious links. That way, hackers will hardly scam you.
5. Transactions are irreversible
Bitcoin transactions are irreversible. You will hardly recover your tokens if you transfer them to the wrong person or send an extra amount during a peer-to-peer transaction.
The irreversible nature makes peer-to-peer transactions risky. A buyer might fail to pay for the cryptocurrency received, and some sellers might refuse to send tokens after receiving payment.
In that case, you have to be extra careful when making transactions. Always choose the right amount to send, and ensure the recipient’s address is correct. Do your transactions on a reputable crypto exchange to avoid scammers.
6. Losing keys is disastrous
Cryptocurrency wallets are protected by a private key, which works like a password. You will need the key to access your wallet, prove ownership, and transfer the digital currency. Without the key, you will lose access to your wallet and the bitcoin stored therein.
Unlike common passwords, you cannot reset the keys. So, when you lose the keys, the cryptocurrency wallet will give you a few attempts to guess. If you fail to recall the keys, the wallet will encrypt its content forever.
For that reason, when you start trading, store your keys somewhere safe and accessible. You wouldn’t want to lose your digital coins simply because you forgot the keys.
Bitcoin trading comes with a fair share of risks. It is highly volatile and prone to hackers. Moreover, digital currency transactions are irreversible, and you could lose everything just in case you forget your crypto wallet’s keys.
So, engaging in this trade is not all good as many advisors tend to claim. Then again, that shouldn’t discourage you from trading. Just familiarize yourself with risks, and make sure you take the necessary precautions while trading.