Know About The Risk To Invest In Cryptocurrencies

Listen to this article

In recent times there has been a huge interest in investing in cryptocurrencies such as Bitcoin, Bitcoin Cash, Bitcoin Gold, Ethereum, Ethereum Classic, Litecoin, Ripple, Its high volatility, attempts to regulation. They also represent an opportunity to obtain benefits that makes the cryptocurrency market.

The initial idea of many people about cryptocurrencies was that this type of asset was going to be an alternative payment method to the traditional one. The benefits that digital currencies were going to bring were not depending on any government, any central bank and any monetary authority. Investors viewed these assets as an alternative to everyday money. Anonymous transactions and outside the regulation of the system are the main characteristics of cryptocurrencies as a means of payment. Bitcoin Optimizer offers you to earn more Bitcoin.

Risks when investing in cryptocurrencies

1- High volatility

Bitcoin (as a reference asset for this market) presented an annualized volatility in the last 12 months of over 80%. This high volatility makes these assets considered high risk and unsuitable for retail investment as stated by the Security Exchange Commission (SEC). Such volatility is ideal for trading focused trading. We just need to know how and with what:

We must choose investment instruments that allow us to carry out active management to avoid the risks of fluctuations in the market. The volatility can become an ally rather than a risk. But be careful, we must know how to manage volatility.

2- Changes or regulatory attempts

The truth is that so far, except for very specific cases, there are only declarations of intention to regulate the cryptocurrency market. Others also think that the fact that they are not under the protection of any government defines these assets as lacking intrinsic value. Its valuation only comes from the price that investors give it in the market. The law of supply and demand is the only one applicable. If the market (as a collective entity) decides to withdraw trust in cryptocurrencies they will have no value.

In a way, none of the traditional currencies have intrinsic value. They are just trust. If for some reason confidence in any currency falters, the central bank on duty or the IMF would take steps to restore it. That is its function. However, with cryptocurrencies it is the market that rules, it is the market that can determine its value. This should make us reflect on whether it is worth investing in cryptocurrencies for other purposes than trading, understanding trading as obtaining market capital gains in the short term.

There are several reasons to start regulating cryptocurrencies. Starting with the problems they present in the protection of consumers and investors, given that these assets do not have the support of any financial institution. The investor who buys virtual currencies in cash is totally helpless.

3- Risk of theft

Until relatively recently, the idea was held that cryptocurrencies could not be stolen because they were intangible assets. If something is not created in physical format, how can it be stolen? Have them ask the hackers. This theory has been denied. Bitcoin and any other of the digital currencies can be the object of computer attacks.

These types of attacks are usually directed at the purchase and custody platforms. These platforms act as virtual wallets, strictly digital checking accounts that allow for the custody and exchange of cryptocurrencies. The problem is that these accounts have the risk that they could be hacked and consequently emptied, leaving our balance at zero. The above mentioned, the absence of regulation that allows these platforms not to be attached to any guarantee fund, or solvency requirements, or obligation to purchase insurance…

4- High commissions and execution times

Bitcoin (as the most liquid digital currency that exists) is not that it has been fully accepted as a means of payment. It is true that there are establishments, although few, in which payment is allowed through this type of cryptocurrency.

The underlying problem is the high fees that the use of Bitcoin has. That counting on that this concrete currency is susceptible of being exchanged for traditional money (fiat money). Ethereum, Litecoin, Ripple and a large part of cryptocurrencies are acquired in the market only by exchanging them for Bitcoin on one of the aforementioned exchange and custody platforms, thereby increasing commissions.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.