How to Safely Invest in Cryptocurrencies

Is it safe in which way? Short-term, long-term? Safe as not illegal? Safe as secure from hackers?

Since I don’t know what you meant I’ll answer on all of these questions.

Investing in Bitcoins always carries its risks, of course. I’ll divide them in different risk types and explain them below.

Market Risk:

Just like any investment, Bitcoin value fluctuates. The price of Bitcoin has seen some wild swings in its short existence.

Speaking of short-term investment, that can go both ways. You could earn money if the price jumps, or you could lose money if it drops. If you’re a newbie, do a detailed research before giving it a go.

Long-term investment seems less risky, because of Bitcoins upwards trend. Bitcoin is accepted by more and more businesses as a payment option, and as the adoption rate grow, so does the price.

There’s also a small possibility of failure we need to consider as well. If fewer people begin to accept Bitcoin as a means of payment, this digital currency may lose value and could become worthless.

Tax Risk:

The US IRS has already announced that it treats Bitcoin as property for federal tax purposes. As Bitcoin is ineligible to be included in any tax-advantaged retirement accounts, there are no good, legal options to protect investments in Bitcoin from taxation.

Regulatory Risk:

Bitcoins are a rival to government-issued currency and may be used for black market transactions or tax evasion.

Governments may seek to regulate, restrict or ban the use and sale of Bitcoins. Some governments have already put this into practice. This could mean that one day you’ll be treated as a criminal for owning Bitcoins.

Security Risk:

Bitcoin exchanges are completely digital and, as with any Internet-connected system, are at risk from hackers, malware and operational glitches. If a hacker gains access to a Bitcoin owner’s hard drive and steals his private encryption key, he could transfer the stolen Bitcoins to another account. This is particularly troublesome once you remember that all Bitcoin transactions are permanent and irreversible.

Fraud Risk:

While Bitcoin uses private key encryption to verify owners and register transactions, fraudsters and scammers may attempt to sell false Bitcoins. For instance, in 2013, the SEC brought legal action against an operator of a Bitcoin-related Ponzi scheme. You could also be tricked by fake exchanges, fake accounts at LocalBitcoins, etc.

Insurance Risk:

Some investments are insured like normal bank accounts, which are insured up to a certain amount depending on the jurisdiction. Bitcoin exchanges and Bitcoin accounts are not insured by any type of federal or government program. If the exchange gets hacked you may not see your funds again (but so far, in the majority of the cases, the funds were eventually returned to the owners).



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