Is Bitcoin Safe?

Is bitcoin safe? Forbes Consultant

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The cryptocurrency markets had a rough time in 2022, so you might be wondering about the safety and security of this bold new asset class.

Bitcoin (BTC) is down nearly 60% over the year. Meanwhile, crypto crimes are on the rise due to the lack of a legal framework. In the first quarter of this year alone, the Federal Trade Commission reported that $329 million in cryptocurrency was lost to crypto fraud.

Falling prices combined with an increased risk of criminal attacks are enough to make anyone think twice about their Bitcoin security.

Is bitcoin a safe investment?

Understanding whether Bitcoin is a safe investment depends on how you define security.

There is no doubt that the price of Bitcoin can be very high volatile. In 2022 alone, the price of BTC has dropped from around $48,000 to around $19,500 at the time of writing.

Such losses would make investors run for the hills for any other asset class. If you define security as an investment with a relatively stable price, Bitcoin may not be a safe bet for your investment portfolio.

However, the mercurial nature of Bitcoin may change.

“Bitcoin is becoming more integrated with traditional financial markets and is seeing significant participation from retail and increasingly from institutional investors,” says Ryan Burke, general manager at Invest at M1. “Historically, BTC has been more volatile, but it has really become a mainstream alternative asset in recent times associated with big tech.”

If you think of Bitcoin as digital gold, similar to a commodity rather than an investment security, you can add another dimension to the security question.

“Bitcoin technology is relatively secure, but it is not anonymous and relies on passwords,” says Daniel Rodriguez, COO of Hill Wealth Strategies.

While Bitcoin hides your personal information, the address of a file crypto wallet publicly available.

“Hackers can use web trackers and cookies to find more information about transactions that may lead to your private information and data,” Rodriguez says. If anonymity is part of your definition of security, Bitcoin may not be completely secure.

Likewise, your cryptocurrency is only as safe as the crypto wallet you keep it in. If you lose your wallet password or someone else gets it, you will lose your bitcoin.

You’ll often see a “Not SIPC Protected” or “Not FDIC Secured” disclaimer attached to Bitcoin purchases. This means that if the company holding your cryptocurrency investments fails, none of these spare pauses will save you.

It should be noted that none of these concerns relate to the security of the Bitcoin network itself, according to Jill Luria, technology strategist at DA Davidson Co. “It has survived unharmed throughout its 13 years of existence and has yet to be hacked.”

Things to consider before buying Bitcoin

Due to Bitcoin’s high volatility and security risks, it is important to consider your reasons for buying before trading any dollars for BTC.

Luria says cryptocurrency is a highly speculative investment. The risk/reward profile of investing in Bitcoin is different from investing in most stocks or bonds. We tend to recommend investors only to consider investing capital they are willing to lose,” he says.

Buying Bitcoin as an Investment to Fund Your Retirement? In this case, it is best to keep your exposure to a minimum because no one can predict where the market will go. Most financial advisors We recommend keeping Bitcoin to less than 5% of your total portfolio.

You should prepare for an unreliable narrator if you think bitcoin is a currency. You can easily log out of the computer one day with $60,000 in BTC and log in with only $45,000 the next morning.

Then there is the uncertainty around the cryptocurrency regulatory environment.

Currently, there is no comprehensive regulatory framework like how the Financial Industry Regulatory Authority (FINRA) and the Securities Commission (SEC) regulate securities or the Federal Reserve and the FDIC to regulate banks.

While Burke is optimistic about long-term developments in Bitcoin, uncertainty is an investor’s worst enemy. Assuming you are comfortable with the risks and uncertainty, Bitcoin can have a place in your financial life.

What are the risks of bitcoin?

Like any investment, Bitcoin is not risk-free. There are many risks to cryptocurrencies, from market risks to regulatory risks and cybersecurity risks.

“Market risk is one of the biggest risks associated with bitcoin,” Rodriguez says. Just look at any price history chart and see what kind of road trip Bitcoin investors would like to take.

“Historically, Bitcoin has also reacted inversely to interest rates,” he says. “So when the Fed raises interest rates, bitcoin usually goes down because investors start leaning towards safer and more stable investments.”

Regulatory uncertainty also poses a risk.

“In 2021, China, the second largest economy in the world, made it virtually illegal for citizens to mine or hold any cryptocurrency,” Rodriguez says.

If other countries follow suit, bitcoin holders may be in hot water.

Cyber ​​security is another major concern for all digital asset holders. Remember that your transactions are as anonymous and secure as your wallet information and passwords.

The Department of Justice recently demonstrated that blockchain transactions are not immune to tracking when it followed the path left by a couple trying to launder $4.5 billion in stolen cryptocurrency in the 2016 Bitfinex hack.

There is also an increased risk of cryptocurrency crime. The Federal Trade Commission (FTC) reported that nearly 7,000 people reported losing an average of $1,900 in cryptocurrency due to crime or fraud from October 1, 2020 through March 31, 2021.

How to keep your bitcoin safe

The safety of your Bitcoin largely depends on how it is stored. Your choice of crypto wallet and the level of encryption you use plays a big role in keeping your coins safe.

“Security and convenience don’t always go hand in hand,” Burke says.

He says offline “cold” wallets are safe from hacking but less convenient than hot wallets. Cold wallets are also subject to theft or loss. “If you lose a device, drive it, or lose your private key, you have a problem,” Burke says.

Hot wallets are more convenient because you can access your cryptocurrency from anywhere you have an internet connection or cellular service, but they are more vulnerable to hacking.

“A wise strategy is to use a combination of hot and cold storage, while keeping most assets in cold storage,” Burke says.

Burke adds whatever storage method you choose, make sure you know if your cryptocurrency is being loaned, pledged or pledged as collateral.

Experts say it is important to read the terms and conditions before signing up for a wallet or service, so that the cryptocurrency does not inadvertently end up as another victim of the crypto liquidity crisis.

As with any investment, research whether investing in Bitcoin is a good fit for your investment portfolio. If you buy BTC as part of your investment strategy, be prepared for highs and lows.

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