Are Bitcoins Safe to Invest In? 2022

As the price of Bitcoin (BTC) has risen enormously since this cryptocurrency’ was created back in 2008, more and more people have started showing interest to invest in Bitcoin, hoping to get a solid return on investment.

If you’re an enthusiast looking to purchase Bitcoin as well, this may seem like the right time to do so. However, you might be wondering whether buying Bitcoin would be a risky investment. After all, as the number of potential investors in Bitcoin continues to rise, so too does the number of those looking to abuse Bitcoin trading for their own gains, such as scammers and hackers.

This article will inform you how safe it is to invest in Bitcoin as a digital asset, as well as how to increase the safety of these assets if you already own bitcoins. 

Background

Cryptocurrency-related crime is a serious threat to the safety of Bitcoin usage. By far the biggest amount of crypto crime happens in the form of scams and frauds, with theft and ransomware attacks coming off second on the list. In other words, investors who aren’t cautious enough when buying digital currency can get into different kinds of trouble — from having their Bitcoin stolen by hackers to becoming victims of scams when trying to purchase crypto assets.

Physical bitcoin with mobile phone with stocks figures on screen

Out of all cryptocurrencies being traded, Bitcoin is by far the most popular to date, which means it also accounts for the bulk of crypto-related crime. What’s more, many people are also reluctant to engage in Bitcoin investments because of how often the price of this cryptocurrency fluctuates — at any given moment, the value of Bitcoin could go down, and the drop in price might be pretty big, too.

With this in mind, investing in Bitcoin is still mostly profitable, as with the right strategy, traders can take advantage of its sudden price movements. As for scammers, the security of the Bitcoin network is actually pretty high in technical terms, because of the blockchain technology that powers it.

Things You Should Know Before You Buy Bitcoin

If you’re considering investing in Bitcoin, there are a number of cryptocurrency exchanges that sell Bitcoin to buyers on a daily basis and will be happy to provide you with some. It should be noted that these exchanges are run by businesses providing online crypto trading platforms to their users and that they commonly charge transaction fees for their services. Some of the more famous examples of crypto exchanges include Coinbase, Binance, and Kraken to name just a few.

It’s important to note that, besides centralized platforms, there exist decentralized crypto exchanges as well. These platforms attract many crypto traders who don’t want to share too much personal information with the platforms they’re using. Centralized platforms, while boasting stronger safety measures, also play the role of intermediaries in crypto transactions and, in compliance with local regulatory bodies, require their users to adhere to KYC (Know Your Customer) and AML (Anti-Money Laundering) laws.

While these laws ensure scam protection and increased safety, they are also far less anonymous, which is why many users would rather choose the anonymity that decentralized crypto exchanges offer them as an alternative. Still, if safety is your priority, you’d do better to stick with centralized and regulated exchanges rather than their decentralized counterparts when buying Bitcoin.

Apart from cryptocurrency exchange platforms, you can also find someone to sell Bitcoin to you on peer-to-peer exchanges, as well as through the assistance of crypto brokers. Eventually, you can also buy it at Bitcoin ATMs — physical machines that allow you to buy Bitcoin in exchange for fiat currencies, usually charging much more in transaction fees.

While bitcoins aren’t difficult to come across, you should always keep in mind that your investment will likely either increase or decrease in value with the passing of time. As the price of Bitcoin tends to fluctuate, it’s hard to tell what your return on investment will be. 

Is Bitcoin a Good Investment?

If you want to be 100% certain that what you invest in will bring you a guaranteed return, you might want to reconsider investing in Bitcoin. The same goes for other trending cryptocurrencies and altcoins such as Ethereum (ETH), Litecoin (LTC), Binance Coin (BNB), and others. 

Dark skinned man wearing suit holding bitcoin

The volatility of the price of Bitcoin means that it can double or get cut in half within a month. The same thing goes for other altcoins, especially new coins that have low liquidity. If this kind of instability and price fluctuations are something you can’t handle personally, or if you simply can’t afford abrupt changes in the value of your digital assets, investing in Bitcoin isn’t going to be helpful — you should probably stick to more traditional investments instead.

If you’re an investor looking to add crypto assets to your portfolio, consider keeping a lower level of Bitcoin investments overall, not more than a tenth of your total investments combined. In the past few years, a single Bitcoin has cost large amounts in fiat currency — tens of thousands of Australian and U.S. dollars. If you can’t afford a whole Bitcoin, you can always choose to purchase only a fraction of it, with the smallest tradable amount of Bitcoin being the satoshi (1 BTC = 100,000,000 satoshis).

At any rate, because of the inherent volatility of Bitcoin, you can’t rely on it as your sole source of income, and particularly in the case of retirement, you’d do well to have a standard retirement plan as a basis. Relying on emergency funds is also not a bad idea, and you’d do well to be completely debt-free — especially when it comes to high-interest debts — before you actually decide to buy Bitcoin.

Security Concerns

As with most other digital assets, when acquiring Bitcoin, the possibility of getting scammed or hacked is a major concern. Perhaps the most common type of crime related to Bitcoin transactions is the scams, a deceptive scheme wherein criminals pose as parties interested to sell Bitcoin. They usually convince prospective buyers to pay them up front with the promise and then disappear without a trace once they get paid.

Some scams also include more elaborate schemes, wherein scammers send out messages to their potential victims, promising them to earn more money or crypto assets if they first make a small payment to these traders’ digital wallets and ask for their payment details (either their bank account, credit card, PayPal, or other means of online payment).

Therefore, should you decide to invest in Bitcoin, you should be extremely careful about who you decide to deal with. It’s usually best to go for verified crypto exchanges that have already established a name for themselves — that is, mostly well-known centralized platforms like Coinbase. If you’re looking for Bitcoin brokerage services rather than crypto exchanges, make sure they’re approved by the crypto trading community, too.

How to Spot a Scam Scheme

There are a few signs to look out for when dealing with suspicious offers in crypto trading. For one thing, scammers will often try to convince you to pay them in Bitcoin for recruiting more members into their program, suggesting you’ll be getting much more money in return once their plan works out. 

Hand holding mobile phone with malware alert on screen on top of wood table

In general, whenever someone you don’t know contacts you directly and tries to offer you something you didn’t ask for in the first place, it’s a good sign you should avoid them — particularly if they do so through less secure, peer-to-peer crypto trading platforms you might be using. As a rule, do some research into platforms and offers before you decide to engage in any, and, just to be sure, practice buying Bitcoin from crypto exchanges that have already made a name for themselves on the market.

How to Trade Bitcoin Safely

If you’re a beginner in crypto and Bitcoin trading, it’s very likely that scammers and hackers might try to take advantage of your lack of experience. Of course, this doesn’t mean that you’re absolutely bound to be a victim of a scam, particularly if you stick to trusted exchanges and take precautionary measures. After all, crypto-related crime, while being a great cause for concern in itself, only affects a smaller percentage of Bitcoin users — in fact, even as crypto-crime hits all-time highs, it still only accounts for about 0.15% of all crypto transactions. 

However, even if you’re well prepared and confident nothing can go wrong when buying Bitcoin, it always pays to take some extra steps to ensure nothing is lacking in terms of safety during your transactions.

Cryptocurrency Wallets

Bitcoin and other cryptocurrencies are kept secure thanks to crypto wallets, which hold the security keys that grant your access to these digital assets that exist on their respective blockchains. Digital crypto wallets can be particularly vulnerable to hackers. 

Bitcoin exchange platforms will often provide you with so-called hot crypto wallets where you can store your keys online. While these hot Bitcoin wallets maintain a strong level of safety, they’re still accessed over the internet, which means there’s a risk of them being hacked. The level of safety traditional bank accounts provide for your fiat currencies can’t be matched by these wallets.

Therefore, should you choose to use the hot wallets crypto exchanges provide you with, pick an exchange that’s famous for its top-notch safety precautions, such as advanced user authentication methods (two-factor being a common practice) and cold storage, i.e. storing larger proportions of the crypto they hold on external hardware devices not connected to the internet. What’s more, there are also crypto exchange platforms that offer private insurance against thefts and hacks as an extra service.

Gold bitcoin on blue wood background

The most effective way to protect your bitcoins from any online intrusions, however, is to use cold wallets instead of hot ones. Cold wallets are offline devices that store the security keys you use to access your BTC. This can include hardware storage devices very similar to USB drives, as well as paper wallets. The latter kind eliminates any kind of electronic storage altogether and is safer than the former (which still has to be connected to a computer through a USB slot and, therefore, risks infection in case the computer has viruses on it). However, should you lose your cold wallets (or simply lose the password in case it’s a hardware wallet), you’ll end up being locked out from accessing your Bitcoin altogether.

Bitcoin Price Volatility

Over the course of the past years, the price of Bitcoin has undergone significant variations. In less than ten years, the price has gone up from just a couple hundred to tens of thousands of USD. This price doesn’t remain stable for prolonged periods of time either — it typically goes up and down several times in a single day.

This high volatility is interlinked with the law of supply and demand. When the demand for Bitcoin is bigger than the market supply, its price will rise — and vice versa. In the case of Bitcoin, its current daily average volatility is estimated at 3%.

In practice, because of the high volatility of its value, Bitcoin isn’t a stable asset to invest in. For investors, this means that they are susceptible to higher gains or losses from investing in Bitcoin than any other asset with lower volatility.

Trying to predict variations in the value of Bitcoin is a highly speculative activity, which is why recent increases in Bitcoin prices don’t guarantee that you’ll have any return on investment in the long term. Because of this, it’s best to keep Bitcoin investments at a lower percentage of your overall investment portfolio.

Vector illustration of businessman worried with downward arrow on top of bitcoin

However, this doesn’t mean you should panic if you’ve already invested in Bitcoin with the expectation of long-term returns. In such cases, the best approach would be to play the long game. In case you notice price drops in Bitcoin, refrain from acting compulsively and selling off all your assets to salvage whatever value you can; instead, its best to leave your Bitcoin investment and wait for future price fluctuations with the hope your investment will once again regain (and ideally exceed) the value it had when you acquired it.

A Few Words Before You Go…

With crime activities related to crypto trading practices being somewhat of a common occurrence, concern over the safety of Bitcoin investments is on the rise. While crypto trading enjoys certain levels of deregulation, which attracts many people looking to invest in decentralized assets, it also means that many scammers and hackers will try to take advantage of the loopholes appearing because of the lack of regulation. On top of that, there’s the price volatility to be taken into account.

If you consider investing in Bitcoin but wonder whether it’s safe, there are certain things you should consider before you finally decide to purchase some Bitcoin. This article aims to inform you about the safety risks that underlie Bitcoin investments, what to expect in terms of return on investment, how to best protect yourself when buying Bitcoin through the various platforms that allow for trade in this cryptocurrency, as well as the repercussions Bitcoin trading may have on your privacy. Ultimately, this knowledge can help you understand whether you’re ready to commit to purchasing any amount of this cryptocurrency.

About The Author

Gareth Johnson
Gareth Johnson

Gareth is incredibly passionate about sharing his knowledge in the crypto industry. It's important to make informed decisions in crypto and it's Crypto Wisdom's goal to make this information widely accessible.

This page was last updated on February 16, 2022