You have probably heard a lot about Bitcoin by now, and you’ve likely even read some stories about Bitcoin millionaires – some of whom are regular people, and even teenagers, who figured out how to mine Bitcoin or who got into this cryptocurrency investment early when coins cost almost nothing.
With all the news about Bitcoin, you may be thinking of investing yourself. Although the future is uncertain, many financial experts believe there is a lot of upside to Bitcoin and that continuing to invest in this cryptocurrency is a sound investment. Of course, like any investment, there’s a risk of loss if the currency collapses or if demand for Bitcoins falls.
In addition to the standard risks associated with any volatile investments, there are also some additional risks or challenges faced by Bitcoin investors because this cryptocurrency is still relatively new to the financial marketplace. Working with a Bitcoin attorney to understand the law, your rights, and your obligations can all help you to overcome the challenges and minimize the risks of Bitcoin investments.
Still, it’s worth knowing about some of the potential issues that could affect your investments. Some of these challenges include:
- A developing regulatory climate: One of the big attractions to Bitcoin and other cryptocurrencies was the fact that the system operated outside of a Central Bank. There was no one agency or organization controlling the flow of Bitcoin. While Bitcoin still maintain its independence from a central bank, such as the federal reserve, both the U.S. government and governments throughout the world have begun developing a regulatory framework to control how Bitcoin and its marketplaces operate. As laws change and evolve, Bitcoin investors will need to understand and comply with these new rules and regulations. If countries crack down on Bitcoin and close trading platforms, investors could also face financial loss.
- An IRS crackdown on investors who don’t report income: Although Bitcoin is theoretically supposed to be an untraceable cryptocurrency, in practice there are records kept on many people who purchase Bitcoins on coin exchanges. A federal judge ordered Coinbase, one of the most popular of the virtual currency trading platforms, to turn over information on certain Bitcoin buyers. It’s likely further similar legal actions will be pursued in order to compel other information on Bitcoin investors to eventually be turned over to the IRS.
- A risk of losing access to your coins: When you buy Bitcoin, public and private keys are generated. Many people keep their Bitcoins in digital wallets so they are able to enter into transactions and prove ownership. However, if you lose access to your data with your private key for your coins, it may be difficult or impossible to recover your coins.
These are just a few of the challenges that could arise in connection with Bitcoin investments.
Whether you’ve invested in Bitcoin already or are thinking about making an investment in the future, it is imperative you fully understand the risks and potential benefits of your investment choice. A Bitcoin attorney can help you to interpret and apply emerging laws so you can comply with your obligations and, when necessary, can utilize the legal system to protect you.