Did you hear about the people that are mortgaging their home1 to invest in Bitcoin? It seems that as more and more people become interested in Bitcoin that more people are thinking about adding it to their portfolio. With the recent major price increase of this cryptocurrency, there seems to be two opinions; one side is saying that Bitcoin is just a fad and that it serves no real investment purpose, while the other side feels the gains are worth the risks. With so many people and opinions out there telling you what you should do, you need to know the facts before you start to trade Bitcoin or you want to put it in your investment portfolio.
The first risk factor you need to know about Bitcoin, or any other cryptocurrency, is that it is not regulated at all. Exchanges are regulated, but not the actual asset.² That’s right, there is no government agency making sure that the asset is safe or regulated, it is more of a community regulation. This is an obvious risk for investors close to or in retirement, who are more concerned with investment security and safety. Another risk with Bitcoin is that it is a volatile investment3 with the price of the cryptocurrency changing by the minute at times. The price can literally go up thousands of dollars in a single day, but can also go down a thousand dollars in a single day. This risk should really be taken into consideration as anyone investing close to or in retirement are likely not in a position to make up for sharp losses if the cryptocurrency price falls dramatically and does not go back up. Another thing to know is that Bitcoin is the biggest cryptocurrency but that does not mean that there are not other cryptocurrencies that are high risk as well, such as Ripple, Etherium, and more.
Bitcoin and other cryptocurrency have another risk factor, security. Yes, there have been hacks in the Bitcoin community recently. One of the largest hacks came in December of 2017 worth 70 million dollars!4 This currency is an online or digital currency so security is important and the industry is still navigating their way through these situations.
Adding crypto in your retirement portfolio can be risky, especially at a time in your life when most experts agree that you should reduce your risk5 to protect your accumulated assets. Whether it be the stock market or the volatility of Bitcoin, risk is not your friend in retirement. Make sure that you understand each risk in your retirement plan, have a diverse portfolio and understand that you should have a clear goal and strategy. If you are a day trader trying to make fast profits or you are a person trying to save wealth for retirement, you need to be sure that if you add some cryptocurrency in your portfolio that you are aware of the big price movements.
In speculative investments like this, it is never wise to invest more than what you can afford to lose. Retirement is not the time to put it all on red at the roulette table!
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