What do you use cryptocurrency for? Do you pay for your services through it, or do you use it to invest? Cryptocurrency is the future of the financial market. In the digital world, crypto has made its way through like water entering a stream.
Have you ever wondered which cryptocurrency to prefer over the other? Well, it’s a game of preference. Bitcoin is the OG cryptocurrency but it is also with many associated risks. Diving into this market is totally a personal choice. On one hand, there are risks, but on the other hand, you can greatly take advantage of crypto.
This article will cover all the risks associated with investing in crypto, ending with a guide to a proactive approach for navigating risks.
Top 6 Risks of Investing In Crypto
What do you do before opting for an investment? Before you take the plunge of investing in any asset, just do your research. Just ask yourself why you want to do it. In the case of cryptocurrency, many people are attracted to investing in it because of its trendiness. Ask yourself if you are in it for trendiness and you feel the fear of missing out or if you really think your investment holds some value.
Answering these questions would make your journey easy. After that analyze each and every risk you may encounter in your investment.
1. Volatility: the Ups and Downs in Prices
Crypto is a small market and runs on speculations, which is why it is more prone to fluctuations. Are you someone who is comfortable taking risks? If not, then crypto has a tendency to make your blood boil one day and make you the happiest person on earth the next day. The spike and drop chart of crypto makes it the most volatile in digital assets.
The pro investors use different techniques to save themselves from market volatility season. They use Tether as a hedge against this volatility as it is a stablecoin that is pegged to the dollar.
If you think of investing in crypto, use this stablecoin as a haven against the fluctuations. Then, utilize those platforms that accept tether payments and other cryptocurrencies backed by a versatile and all-in-one crypto payment processor. With this comprehensive payment processor, you can do transactions and expand your business.
2. A Grey Area for Legal Regulations
As of now the crypto industry is not regulated. Do you think it will be in the future? There is a doubt that it ever will be. As cryptocurrency is tax-free more and more people feel appeal toward investing in it.
For the same reason the government currency feels threatened by this tax-free currency and the competition it poses in the future. Governments and other financial institutions find crypto to be alarming and may decide to put an end to this through their own regulations. This risk is ever looming in the present as well as in the future.
3. Security Threats of Hacking and Scams
What if you become the victim of cybercrime? To whom would you report this unfortunate event? Due to no regulations crypto is an easy target for hackers. And if you lose your coins there is not a way to retrieve them. Even if you use wallets, there is a risk
As mentioned above I have said research is important. You can be easily trapped in scams or frauds if your knowledge is not up-to-date. There are many fake exchanges and many crypto projects that are not real and promise fake services.
4. Reliance on tech
Have you ever questioned what the worth of Bitcoin or any other cryptocurrency is without technology? Coins are mined, stored, and exchanged through different types of technologies.
When COVID came, the physical world was shut down. No one ever imagined or anticipated this, but it happened. In the same manner what if like COVID a virus spreads but this time it affects the tech world? What would happen to crypto then?
5. Liquidity
Imagine a scenario where you have invested a great capital in any crypto but now you have to leave your position. There has to be enough liquidity to fill your spot, or the other option is for the price of that cryptocurrency to fall. This liquidity constraint affects smaller cryptos more than the larger ones like Bitcoin and Ethereum.
6. Ethical and environmental concerns
Do you know how much energy a Bitcoin transaction takes? It approximately equals the energy a household consumes in a week. This is a direct threat to environmental sustainability, and also, with the carbon footprint crypto leaves, it poses an ethical dilemma.
That is the reason for opting for greener currencies and also Ethereum’s transition to PoS (proof of stake) from PoW (proof of work).
Final Thoughts
In a crux, you can say crypto is a good investment, but you must know the above-mentioned risks, and who knows if these risks will increase over time or totally vanish. As it is commonly said, “Prevention is better than cure.” That’s why you should have a proactive approach toward these challenges. A proactive approach will help you make informed and knowledgeable decisions for potential losses.
