If you are new to cryptocurrency investing, there are certain risks you should be aware of.
The crypto market picked up momentum again in 2023. The Bitcoin currency has gained more than 90% in value since the turn of the year. Altcoins have followed bitcoin and seen huge gains in recent weeks.
Investing in cryptocurrencies can generate great profits in the future. Unlike other asset classes, cryptocurrencies are highly volatile and therefore also offer the potential to generate extremely high returns.
However, some dangers and risks that come with investing in cryptocurrency need to be addressed. That doesn’t mean you should be afraid to invest. However, it is paramount to highlight five risks when investing in cryptocurrencies.
The Risks of Investing in Cryptocurrencies
Strong Price Losses: Cryptocurrency prices can fluctuate wildly. This means that you can earn high returns. However, prices can also drop sharply in a short period of time. Inexperienced investors often sell at lower prices and realize losses.
Scams: Unfortunately, the cryptocurrency market is full of scams. There are now several thousand cryptocurrencies. There are always scams between these currencies. A young, volatile and unregulated market attracts scammers who want to win over inexperienced investors with good marketing.
Theft: Like digital currencies, the risks of digital theft are also very high. While with FIAT currencies, banks protect people’s money, cryptocurrency investors are often responsible for their own currencies. Inattentive behavior can easily lead to theft. Even though Blockchain technology is considered the most secure yet, it cannot anticipate or prevent mistakes by its users. In other words, if a user’s private key is accidentally in someone else’s possession, it could be used for theft or fraud.
Cryptocurrency Exchanges: Cryptocurrency exchanges make it easy to buy and trade cryptocurrencies. However, these core trading platforms also carry their own risks, such as theft (Mt. Gox) or bankruptcy (FTX). Due to the confidentiality and anonymity provided by its operations where it is not necessary to provide personal data of those who operate with these cryptoactives, it is possible to use them for anything. Even, through the use of appropriate techniques, the “traces” of transactions, such as the financing of terrorism, can be eliminated.
Own Loss of Coins: If you don’t want to trust crypto exchanges, you can use your own wallet to store your cryptocurrencies. But many investors have already lost their keys (private keys) here. A loss of the keys means a permanent loss of the coins.
How to Avoid These Cryptocurrency Risks?
The most important quality for a cryptocurrency investor to minimize these risks is a willingness to learn. With the right knowledge, these risks can be avoided or at least reduced as much as possible.
Initially appearing as an alternative payment method to currencies issued by central banks, cryptocurrencies have become high-risk investment and speculation assets.
Therefore, if you have already invested or want to invest in cryptocurrencies, it is essential to take into account that it is a product with a lot of risk. Hence the urgent need to be informed and follow the following recommendations, which apply to any investment: to know what you are investing in; to invest only money that is not needed; to avoid borrowing to invest; and to invest for the long term.
By Audy Castaneda
