Investing in bitcoin? Know these risks involved

The global bitcoin rush has rubbed off on the Indian investors too, making India the second biggest bitcoin nation in Asia after China, and the sixth biggest in the world, after the United States, Nigeria, China, Canada and the United Kingdom.

While the Supreme Court in March 2020 quashed a Reserve Bank of India (RBI) ban on bitcoin related payments, investors should still be cautious before making any investments in it.

According to Nischal Shetty, CEO of WazirX, the most important thing that first-time investors should bear in mind is that any cryptocurrency such as bitcoin is a high risk, high reward investment option.

So, investors should understand these risks before investing in it:

Legality

According to Archit Gupta, founder and CEO, ClearTax, the most significant risk in investing in bitcoin is that they are neither regulated by RBI nor have a statutory body to oversee their operations.

Also read | Bitcoin vs mutual funds: Where should you invest?

“The central bank has issued several warnings for Bitcoin traders of possible losses due to adverse developments. Bitcoin was illegal in India until recently when the Supreme revoked the ban on trading cryptocurrencies. There are several instances of fraud and hacking of bitcoin as the underlying technology of bitcoins is fairly new and it’s important to learn to keep them safe,” Gupta explains.

Volatility

Another significant risk involved in investing in bitcoin is that they carry volatility risks as stock markets do.

They can make an investor rich in a day or destroy everything they ever invested within a fraction of a second.

Safety

Bitcoin is an intangible digital, which is only a speculation and that makes it unsafe, experts say. It’s still unknown what it is exactly backed by.

Also read: How bitcoin investments can be taxed in India?

Platform

There are many platforms that claim of allowing bitcoin investments. However, it’s crucial to trade on legitimate exchanges that follow KYC and AML guidelines. As an investor, it is the responsibility of anyone to do due diligence before investing in any cryptocurrency.

Before investing in a project, Shetty of WazirX recommends users to always read its whitepaper, about the team and their background, project development status, and team activity on social media.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.