Bitcoin may seem like the hottest investment vehicle this year, but before you start investing, check out these cryptocurrency risks.

It’s no secret that Bitcoin’s made a lot of people very rich. For example, rapper 50 Cent became a “Bitcoin millionaire” when he discovered his forgotten stash of coins was now worth millions.

So should you invest in a cryptocurrency like Bitcoin? Despite all of the success stories, Bitcoin is still an incredibly volatile currency to invest in. This article highlights 5 of the biggest cryptocurrency risks.

  1. There Are Many Security Risks

In comparison to other kinds of investments, investing in Bitcoin carries a large security risk.

For example, the Mt. Gox Bitcoin Exchange was famously targeted by hackers in a breach that was discovered in 2014. Hackers had been skimming Bitcoins from the exchange, undetected for a number of years. By the time they were caught, they had gotten away with around 850,000 Bitcoins.

Unfortunately, if your money is stolen like this, there’s very little help available for you to get it back.

  1. The SEC Won’t Help You

The SEC has officially announced that there’s little they can do if fraud occurs on a Bitcoin exchange. The trading on these exchanges often “occurs” outside of the US border.

Combine this with the fact that Bitcoin transactions are made to be anonymous and you stand very little chance of recovering your funds if you are scammed. In fact, there’s an argument to be made that you don’t even own your Bitcoins.

  1. There Are a Lot of “Emotional Investors”

The vast majority of Bitcoin trades are done on decentralized exchanges. This means that most institutional investors will stay well clear.

This results in a market that’s heavily driven by emotions rather than analysis. You can expect the value of your investment to regularly go up or down by double figure percentages.

  1. Blockchain Still Isn’t Relevant

You’re probably aware that blockchain is being touted as “the next big thing,” but it’s actually years away from being viable on a large scale. Many people are investing in Bitcoin because they think a blockchain revolution is just on the horizon, but it’s actually further off than most people think. Blockchain has yet to prove itself on a larger scale.

You’re Not Actually Investing in Blockchain Anyway

You might think that an investment in Bitcoin is an investment in blockchain technology, but is this really true?

When you purchase Bitcoins, you’re actually purchasing nothing more than tokens. Owning Bitcoin doesn’t give you any ownership of the Blockchain technology that powers it. Even if Blockchain technology takes off in a big way, it doesn’t necessarily mean that a Bitcoin investment was a worthwhile one.

  1. Lack of Fundamental Metrics

Investing in Bitcoin or another type of cryptocurrency is fundamentally different from traditional investing. This means all the traditional metrics you’re used to looking up on sites like Investor Mint might not apply. This can make Bitcoin investments challenging for even the most experienced of investors.

Understand the Cryptocurrency Risks: Start Small

You should never make an investment in something you don’t understand. Lots of people make significant investments in Bitcoin without even understanding how Blockchain technology works and what the cryptocurrency risks are.

If you’re interested in Bitcoin, you should definitely start small. Buy a few dollars worth of coins so you can actually gain an understanding of how the technology works. Only then can you even consider making an investment.

Want to read more about blockchain? Then check out this blog post!