Is Bitcoin Safe?
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The short answer: No. Bitcoin is a particularly risky investment with more volatility than traditional investments of stocks, bonds and funds. And aside from the price, you can also lose your Bitcoin through exchange crashes — for example, if you were holding Bitcoin with the crypto exchange FTX or FTX.US when they filed for bankruptcy — losing wallet access or falling victim to scams.
If you decide to buy Bitcoin, it's a good rule of thumb to invest only what you can afford to lose and take measures to protect your assets.
Here are some key things to know.
The value of Bitcoin can be extremely volatile
Many investors piled into Bitcoin after it broke the $20,000 barrier in December 2020 and continued its bull run into April, when the spot price surged to about $69,000. But in the months after, the price began a long decline, with the spot price falling below $16,000 in November 2022.
Longtime investors in cryptocurrency had seen this before. Bitcoin reached its previous record high in December 2017, when the spot price came near $20,000, and one year later the spot price was below $3,400.
Unlike traditional financial exchanges, crypto markets don't have circuit breakers, which automatically pause trading when prices dive or rise too quickly. This means prices could move up or down much faster than traditional investments.
So when investing in Bitcoin, understand that the value can drop quickly — and may take years to regain previous highs.
» Learn more: How to invest in Bitcoin
Crypto exchanges can fail
If you're keeping your crypto with the same exchange where you bought it, as one might do with stocks and bonds, you might lose it if the exchange collapses. And crypto exchanges have failed before.
Consider major exchanges FTX and FTX.US, which filed for Chapter 11 bankruptcy on Nov. 11, 2022. While affected users will be able to put in a request for recovering funds in the bankruptcy process, it could still take years before they can see a payout, and that payout could be small.
It's been over eight years since exchange Mt. Gox crashed and filed for bankruptcy in 2014, and affected users have yet to receive a payout.
Keep any Bitcoin cold storage device safe
If you want to avoid losing your assets on a crypto exchange, transfer them to a separate crypto wallet. Specifically, consider a cold wallet, which is an offline storage device, much like a USB stick, rather than keeping the crypto stored on a hot wallet, or one that is online. Cold wallet storage can help eliminate the risk of online theft, and such devices range in cost from $100 to $200.
But cold wallets aren't without risk. You'll have to keep your password and seed phrase — sometimes called recovery phrase — safe so you can access your funds. And you'll also need to keep the physical device holding your Bitcoin safe. A man in Wales accidentally disposed of a hard drive with 7,500 Bitcoin — which would be worth about $263 million at the time of this writing.
» Looking for a wallet? Here are our top picks
Watch out for Bitcoin scams
When Bitcoin gains in value, so do the number of scams targeting Bitcoin investors. The Federal Trade Commission reported in May 2021 that over a recent six-month stretch nearly 7,000 people lost $80 million to Bitcoin schemes touting quick returns.
“Sites use fake testimonials and cryptocurrency jargon to appear credible, but promises of enormous, guaranteed returns are simply lies,” the FTC noted. “These websites may even make it look like your investment is growing. But people report that, when they try to withdraw supposed profits, they are told to send even more crypto — and end up getting nothing back.”
» Dive deeper: Is Bitcoin safe?
Also beware of phishing scams in which you receive emails that appear to be from a cryptocurrency exchange but are actually attempts to get you to reveal your passwords. The emails can appear legitimate, with correct logos and branding. Experts recommend not clicking on any links in these emails, and to contact the exchange directly if you get suspicious communications that ask for your password information.
» Beyond Bitcoin: How to buy Ethereum
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Investing in Bitcoin and other cryptocurrencies is risky
Risk is inherent in any investment, but especially with Bitcoin and other emerging cryptocurrencies.
It’s important to take the long view with your investments, to keep your overall portfolio in balance, and never to purchase more Bitcoin (or any single company stock, or other standalone investment) than you can afford to lose.
» Ready to invest? Here are our picks for the best Bitcoin and cryptocurrency exchanges