3 Reasons You Should Be Careful When Buying Bitcoin

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Earlier this year, internet-fueled “memes stocks” exploded, and now cryptocurrencies appear to be the next big thing. While there are plenty of digital currencies you can invest in, you might have your eye on Bitcoin because it’s arguably the most well-known.

There are many investors who have successfully invested in Bitcoin, so you can be eager to follow in their footsteps. Here is why you need to be especially careful when considering Bitcoin.

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1. It’s very volatile

If you have a brokerage account and invest in stocks, you might be no stranger to market volatility. But as madly as stock prices can fluctuate, Bitcoin can fluctuate even more.

Earlier this month, Bitcoin fell to its lowest level in three months after Tesla CEO Elon Musk announced the company was on a hiatus to accept the currency. If you are thinking of buying Bitcoin, prepare for what could be a very intense race.

2. It’s still quite speculative

When you invest in stocks, you can invest your money in companies that have been around for decades. In fact, many stocks in the S&P 500 (a stock index made up of the 500 largest publicly traded companies) have been around for over 100 years.

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Bitcoin, on the other hand, has only been around since 2009. It doesn’t have the long history – or performance – that stocks have. It is also not known whether the value of Bitcoin will really increase in the long term. Much of that will depend on its ability to become a widely accepted form of currency, and it’s too early to know. So if you compare Bitcoin to stocks, there’s really no comparison – they’re entirely different beasts, and the long-term performance of stocks can in no way predict how Bitcoin will perform over time.

3. Your account could be hacked

Security breaches happen all the time on the internet, but it could endanger your Bitcoin (or any cryptocurrency) investment. A number of digital currency exchanges have been the subject of hacking incidents, and you could suffer serious losses if you choose an exchange with poor security.

The good news is that most of the major crypto exchanges have strong security measures in place. But if you are thinking of buying Bitcoin, find one that offers insurance in order to get some protection.

Weigh your options

You can decide Bitcoin is right for you based on your investment strategy and risk tolerance. And that’s not necessarily a bad call. Investing in Bitcoin isn’t always a bad idea – for some people, it’s a great idea. The key is to understand some of the main risks before making that decision.

Additionally, if you are new to cryptocurrency, you may want to consider different currency options before settling on Bitcoin. You might find that there is another one that works better for you.

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