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The Risks of Bitcoin

INTRODUCTION

There are risks with bitcoin that investors need to be aware of in order to manage them. They may be out of the control of investors but at least there are steps one can to in order to minimize the risk. The risks will not be eliminated but at least you can mitigate them to a certain extent.

The Risks of Bitcoin that investors need to be aware of

Risk one-The volatility of bitcoin

Everyone knows how volatile bitcoin is and those who invest in this will see the value of this cryptocurrency fluctuate quite dramatically. Unless you can cope with the rises and falls of bitcoin then investing in bitcoin is not for you. There is little to be gained if the loss of your capital is going to cause you to lose sleep. I cannot stress enough the importance of using your discretionary spending money to play the cryptocurrency market. 

What is discretionary spending?

It is money which is spent on travel, eating out, entertainment, hobbies and sports. 

You would never spend the rent money or money which has been set aside for your retirement on entertainment such as a day out at the races so you should not use that money for playing the cryptocurrency market either.

Risk two-Hacking

A company called “Cryptopia ” which was an online bitcoin trading platform held funds invested in Bitcoin. It was hacked into and all those with bitcoin invested with cryptopia lost their money. There were some sad stories concerning the large amount of money lost by some individuals. 

It has to be repeated that you should never play cryptocurrency money with funds you cannot afford to lose or to place too many eggs in the one basket as many of these investors appear to have done.

The other thing I have to add is that the actual amount of money lost by cryptopia investors is likely to be grossly inflated due to the rising price of bitcoin. If someone invested $1,000 in bitcoin and this rose to $10,000 in a few years only for them to lose the lot. It will go on record that this person has lost 10k when in actual fact, it was just 1k they lost.

Risk three-Lost passwords

An Australian man is locked out of his bitcoin wallet because he cannot even remember his password. The website where he has his bitcoin will lock him out of his wallet permanently if he has made ten failed login attempts. He has made eight. He has over 300k in his bitcoin wallet. 

The lesson here is to write down your password and keep it locked away in a safe place. 

The other piece of advice is to diversify your portfolio so that if something goes horribly wrong you will not lose too much in one hit.

Risk four-Government controls

Governments have the ability to ban crypto trading; China has done just that. Several agencies in China have joined forces to ban what they describe as “illegal” cryptocurrency activity. This is not to say other countries will follow suit but it just illustrates a point that governments do have the power to do this.

Risk five-Taxation

Two things in life are certain, death and taxes. You can be sure that at some point the taxman will want a piece of your bitcoin pie. Whether it be in the form of a Capital Gains Tax or the increased value of bitcoin. It should be remembered that if you are being taxed on the Capital Gains of your bitcoin then it may be possible to claim tax back on any capital losses. A good accountant will be able to advise you here.

Whatever form of capital gains you are investing in it should always be remembered that when there is the opportunity for capital gains there is also the possibility of capital loss. Investing in cryptocurrency is risky therefore, it cannot be stressed enough that the money you invest in bitcoin must be money you can afford to lose.

ABOUT THIS ARTICLE

You are welcome to use this article as content for your ebook or website. More articles by R.A.Stewart can be found at www.robertastewart.com

Ready to invest in bitcoin? Check this out:

https://yazing.com/deals/blockfi/robertalan

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BITCOIN IS AN EXCITING INVESTMENT

INTRODUCTION

Investing in cryptocurrency can be exciting and lucrative but it pays to exercise some common sense strategies if you are going to participate in this form of investment; one which can be classed as pure speculation. 

Investing in Cryptocurrency?

Be sensible and follow all of the basic rules of investing. A few people have got burnt fingers by not following some of the most basic common sense rules which apply to all forms of investing. I have made a list of the main ones to consider. Here they are.

Number one: Invest only discretionary money in Cryptocurrency

The money you are using to purchase Bitcoin, Ethereum, and the like must be money you can fully afford to lose. It must be discretionary spending money. You wouldn’t go to the races or the betting shop with your retirement fund and use that to gamble with. Cryptocurrency investing has to be treated in the same way. It is highly volatile. The number one rule is to purchase cryptocurrency with money you can fully afford to lose using only your discretionary spending money.

What is discretionary spending money?

That is up to an individual’s own priorities and personal circumstances. One person may consider money set aside for a holiday to the islands as discretionary spending but someone else may not want to risk that money in Bitcoin.

Number two: Assess the risk 

As with any investment it is important to assess the risk. It is no secret that Bitcoin is volatile but if you abide by rule number one then there will be little or no change in your financial situation if the cryptocurrency market takes a tumble. Market volatility is not the only risk investors in some countries have to face. China imposed a blanket ban on all crypto transactions in order to stop all cryptocurrency related activities.

Number three: Don’t get greedy

Greed gets the better of a lot of investors. They see the value of their Bitcoin skyrocket and decide to use money which they should not be speculating with for purchasing more Bitcoin. Having some form of exposure to the cryptocurrency market adds an exciting string to your financial bow but don’t try to get rich quick by diverting all of your money to Bitcoin and ignoring other forms of investment.

Number four: Diversify

Spreading your risk helps minimize the risk of losing all your money in one go. Several investors lost all of their money in one major financial hit during the 2008 Global Financial Crisis when companies they invested their life savings with went under. They invested all of their eggs into one basket.

What has this got to do with investing in Bitcoin? Hacking is a danger with Bitcoin therefore having money spread among different platforms will reduce your chances of this happening.

Number five: Use different platforms

Hacking is a possibility which can see your cryptocurrency disappear. It is a good idea to invest your cryptocurrency among different platforms such as blockchain, binanance, blockfi. etc. That way if one of these platforms gets hacked you won’t lose everything in one go.

Number six: Find a safe place to store your password

This is important because many of these cryptocurrency trading websites will only allow you a certain number of wrong passwords and after that you will be permanently locked out of the site.

You wouldn’t want this happening to you. 

There are several things which can go wrong in the crypto-market but with careful planning you can mitigate the risks. Ready to take the next step and invest in Bitcoin? Check out this cryptocurrency platform here:

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THE TACTIC OF AVERAGING

This article is of the opinion of the writer and not intended as financial advice. If you require qualified finance advice see your bank manager, financial advisor, or budget advisor.

The Sharemarket-Averaging

Averaging in the sharemarket is when you purchase shares in a company and as the share price declines you purchase more shares in the company therefore reducing the average price paid per share.

Here is an example of how averaging would work.

Price Number amount Price per share Total average

$4.00 1000 $4000 $4.00 $4000 $4.00

$3.50 1000 $3500 $3.75 $7500 $3.75 

$3.00 1000 $3000 $3.50 $10500 $3.50

$2.50 1000 $2500 $3.25 $13000 $3.25

$2.00 1000 $2000 $3.00 $15000 $3.00 

In this example you began by purchasing 1000 shares at $4 per share but in a sliding market where the price in this companies shares have continued to slide, if you buy this company’s stock as it’s share price continues to fall, the average price you will have paid per stock will be reduced. This is called averaging.

This kind of strategy can be used in the cryptocurrency market but it should be pointed out that only money which you can afford to lose should be risked in Bitcoin.

Investing in gold or other precious metals is another form of capital gains which can form part of your wealth-building strategy, you can find more about it here:

https://affiliates.goldco.com/l/1VRW1MU2Q/

www.robertastewart.com

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ASSESSING RISK VERSUS REWARD

This article is of the opinion of the writer and does not constitute financial advice; if you require advice of a professional contact your financial advisor or bank manager.

Assessing Risk and Reward

Written by R. A. Stewart

Assessing the risk of loss compared to the rewards is a balancing act and requires a bit of insight and knowledge of what you are investing on. This issue has been brought to my attention a couple of times recently. It was only yesterday I received an email from a website which holds bitcoin funds; the email was promoting a special offer. Invest a minimum of $100 US into Ethereum for 4% interest. This was not an offer to purchase Ethereum itself but rather than purchase Cryptocurrency as a means of making Capital Gains you would be investing money for a guaranteed return of 4%. This is a poor return for the risk involved and of course I gave this one a miss but with the low interest rates at present there will be some people who will be tempted if offered this kind of investment.

Finance companies that offer investors higher returns to investors are lending their money to higher risk borrowers; therefore there is a greater risk of losing your money. Prior to several finance companies collapsing in New Zealand during the Global Financial Crisis of 2007/2008, many financial advisors were saying, “The higher interest rates do not reflect the higher risk investors are taking on.” 

Many rejected that advice with disastrous consequences.

Sports betting and horse racing provide perfect examples of risk and reward.

In the Australian Rugby League Melbourne Storm were playing Sydney Roosters. Melbourne has won almost two-thirds of their games since their formation in 1999, therefore if you backed them in every game you would need average odds of $1.50 (1-2) just to break even, yet they were paying $2.20 (5-4). This was over the odds.

In the same weekend, Brisbane Broncos, a team that had lost it’s last five games was favourite against the NZ Warriors. Brisbane were paying $1.60 which was a poor price for an out of form team; they lost.

It is the same with horse racing. If there are equal favourites with one that has won one race in 14 starts and another that has had two starts for one win then which would you prefer? The one that had only been beaten once is the better bet.

You have to do the mathematics and ask yourself this question, “If I backed this horse at all of it’s starts would I be in front with the odds it is paying in today’s race?”

Getting back to investing in the financial markets one has to assess the risk and weigh it up as opposed to the rewards.

One very important point to remember is this; “Whenever there is a possibility of capital gain then there is also the possibility of capital loss.”

Investors need to get used to losing occasionally and get into the habit of taking calculated risks. If you have not had any financial setbacks it means you are not taking risks.

Taking risks is not the same as making foolish financial decisions. Just be sensible with your investing and invest according to your plan and timeframe when you require the money. 

This is some guide;

Short term (with one year) Conservative funds

Medium term (one to five years) Balanced Funds

Long Term (Six to ten years & longer) Growth Funds

Adding another category would be speculative investments.

There is no guarantee what will happen to the markets this decade and in particular post-covid, therefore it pays to diversify your investment portfolio and it is for that reason that some investors are turning to gold as another string to their financial bow but like all types of investments you have to do your research. 

You can learn about investing in gold from the link below:

https://affiliates.goldco.com/l/1VRW1MU2Q/

www.robertastewart.com

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WORD OF WARNING FOR BITCOIN PLAYERS

New Zealand man caught in a bitcoin scam

Investing your hard earned savings requires commonsense but greed often interferes with a person’s sound judgement and this was evident when a Christchurch man lost his life savings of some 300 grand in what was described by police as a bitcoin scam as reported in the Christchurch press.

The number one rule of investing is to NEVER place all of your eggs in the one basket. Whatever possessed someone with this amount of money to do this? I mean you do not accumulate that amount of money without a certain degree of intelligence. It just goes to show that intelligence is not the same thing as wisdom.

The other rule that was broken was “NEVER purchase bitcoins with money you cannot afford to lose.” If you are going to play the cryptocurrency market then play it with discretionary money; this  is money you may have otherwise spent on holidays and travel, or other things that are nice to have but not necessary and that really is a question of knowing the difference between needs and wants.

It appears that both rules were broken by this hapless investor who contacted police to warn others of his loss and pitfalls involving bitcoin.

The investor claimed that as he invested money in bitcoin, his wallet (a crypto currency term) grew larger and he invested more but when the value of his bitcoins shrunk due to the volatile nature of cryptocurrency, he invested more and more money. Someone from the website where he had invested his money kept phoning him and pressured him to invest more. The investor regrets having sent the bitcoin exchange his private details.

The lesson here is to NEVER feel pressured to invest money into any scheme-if you do, tell the other person, “I will speak to my financial advisor first.”

One common denomonator of scams is that they do not want you to discus the matter with anyone else so telling the other person you are going to talk to others about this will test them out.

Three things about bitcoin to keep in mind are;

1-They are highly volatile which means their value can move up and down very quickly. It is important this; “When there is the chance for capital growth-there is also the chance for capital loss,” and this applies to other investments such as the sharemarket, property, coins, or cryptocurrency.

2-Crypto currencies are not regulated in many countries and that includes New Zealand and therefore you have no protection if your investment turns to custard as a result of fraud.

3-Crypto Currency websites are being targeted by internet hackers who will attempt to steal from the wallets of others.

I have an ebook about investing in bitcoin which will help you understand the various aspects of this form of investment if you would like to call it that and you can order it here; Buy Now Button

www.robertastewart.com