Like every investment, Bitcoin carries certain risks. I’ll list all the risks that cross my mind below:
1. High volatility
The price of Bitcoin is highly volatile. Typical 30-day volatility is around 40 percent and 90-day volatility is close to 70 percent. These swings in value are hard to stomach for many people. Although the cryptocurrency has an upward trend, it’s still risky.
Good currencies have low volatility, as owning unstable currency or accepting it as a form of payment becomes too risky.
2. Government regulations
If the government decides to declare owning Bitcoin illegal, you may find yourself in trouble. Currently, the government’s stance on cryptocurrencies is not clear and the danger is real as Bitcoin is not taxed. This is somewhat of a competition to government-issued currency. Other regulations could also make Bitcoin less attractive.
Other cryptocurrencies could make Bitcoin a thing of the past. Offering faster transactions, complete anonymity, storage space and other improvements could lead to lower market share for Bitcoin. If we consider the high quality of emerging cryptocurrencies, this scenario seems pretty plausible.
4. Security of services/products
In order to use Bitcoin you need wallets, exchanges, payment processors, etc. Not all of these services have perfect security and if your funds are stolen, all you can do is to hope your service provider will be kind enough to give you a refund.
Mt. Gox, where thousands of users were left without their funds after a big hacking attack, is the worst example of this.
5. No safety mechanisms
Bitcoin has no safety mechanisms. Typically, you’ll get a private key or random words which protect your wallet. If you lose your key, your funds will be gone with it. There’s no support to contact, no way to change the password, and no way you could verify your identity to get your account back. When it’s gone – it’s gone, there’s nothing anyone can do.