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Insights: The Risks of Investing in Cryptocurrency

July 21, 2017 00:00 AM UTC
- Updated May 05, 2020 14:51 PM UTC

If you’re planning on investing in cryptocurrency, check out these 3 risks you could be taking with your money. (July 2017)

JEN WIECZNER: Cryptocurrency has become a major topic for investors in the last few months. We're talking about things like Bitcoin, Ethereum, Litecoin, and a whole bunch of other new digital currencies. The price of Bitcoin for 1 has risen more than 300% over the last year. It's doubled in 2017 alone. Ethereum, on the other hand, is up 2000%. Needless to say, investors are pretty excited about investing in cryptocurrency. But they need to be wary. Here are three things to know about investing in cryptocurrency. Cryptocurrencies are much more volatile than stocks, or bonds, or any of the assets investors are typically used to investing in. They need to be aware that they can go up 25% in a matter of minutes or hours. Or they can crash, which is extremely common. Beware of scammers, especially now that Bitcoin and Ethereum had become so much more valuable. Hackers are going in attacking investors, getting into their accounts, even a few exchanges have been hacked. Even though cryptocurrencies are much different than the typical assets investors are used to investing in stocks, you still need to pay your taxes on them. The IRS is now going after some investors who have made big profits in these cryptocurrencies like Bitcoin and Ethereum but who haven't paid their taxes. In fact, only 800 people reported their gains in Bitcoin last year to the IRS. Some billionaire investors have put as much as 5% or 10% of their own net worth into cryptocurrency because they say it could be the next big thing, potentially even bigger than the internet boom. And we're not talking just the dot-com boom and bust but everything that came after which has made investors very, very rich. Of course, some investors think that there could be a bubble in the meantime. And it could be even bigger than the dot-com bubble.