Earlier in the year, internet-fueled “meme stocks” blew up, and now, cryptocurrencies seem to be the next big thing. While there are many digital currencies you can invest in, you may have your eye on Bitcoin, since it’s arguably the most well-known.
A lot of investors have had success investing in Bitcoin, so you may be eager to follow in their footsteps. Here’s why you need to be especially cautious when considering Bitcoin.
Start your journey to financial success with a bang
Get free access to the select products we use to help us conquer our money goals. These fully-vetted picks could be the solution to help increase your credit score, to invest more profitably, to build an emergency fund, and much more.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time.
Please read our Privacy Statement and Terms & Conditions.
1. It’s very volatile
If you have a brokerage account and invest in stocks, you may be no stranger to market volatility. But as wildly as stock prices can swing, Bitcoin can swing even more.
Earlier this month, Bitcoin fell to a three-month low after Tesla CEO Elon Musk announced that the company was hitting pause on accepting the currency. If you’re going to buy Bitcoin, gear up for what could be a very intense ride.
2. It’s still pretty speculative
When you invest in stocks, you can put your money into companies that have been around for decades. In fact, many stocks within the S&P 500 (a market index that consists of the 500 largest publicly-traded companies) have been around for upward of 100 years.
The Ascent’s picks for the best online stock brokers
Find the best stock broker for you among these top picks. Whether you’re looking for a special sign-up offer, outstanding customer support, $0 commissions, intuitive mobile apps, or more, you’ll find a stock broker to fit your trading needs.
See the picks
Bitcoin, on the other hand, has only been around since 2009. It doesn’t have the long history — or performance — that stocks have. It’s also unclear whether Bitcoin’s value will really increase long term. Much of that will hinge on whether it becomes a widely accepted form of currency, and it’s too soon to know that. So if you’re comparing Bitcoin to stocks, there’s really no comparison — they’re totally different beasts, and the long-term performance of stocks can’t in any way predict how Bitcoin will fare in time.
3. Your account could get hacked
Security breaches happen on the internet all the time, but that could put your Bitcoin (or any cryptocurrency) investment at risk. A number of digital currency exchanges have been subject to hacking incidents, and you could suffer serious losses if you choose an exchange with lackluster security.
The good news is that most large crypto exchanges have strong security measures in place. But if you’re going to buy Bitcoin, find one that offers insurance, so you get some amount of protection.
Weighing your options
You may decide Bitcoin is right for you based on your investing strategy and tolerance for risk. 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 key risks before you make that decision.
Furthermore, if you’re new to cryptocurrencies, you may want to look at different currency options before settling on Bitcoin. You may find that there’s another that’s a more suitable fit for you.