A cryptocurrency is a digital money paid out in the hope that it will have increased value at some point. By investing in cryptocurrencies, you are taking on a sizable risk. Cryptocurrency is considered to be one of the fastest-growing financial innovations. Traders are using Bitcoin arbitrage bots to make revenue. It has quickly become one of the most popular investments for small investors looking for high-yield returns in short time frames. Visit here to know more about bitcoin trading
As a result, many people choose to put their money into this form of digital currency and enjoy potentially significant gains from lucrative investments. With these gains come considerable risks that these investors don’t understand well. And here is the description of different types of risks involved in cryptocurrency investment:
1. Issues in regulations:
Cryptocurrency investment is still in its infancy, and the current cryptocurrency market is highly volatile, subject to speculation, and largely unregulated. Lack of regulation is the primary reason cryptocurrency prices fluctuate up to 50% within a year. In addition, the prices can also be highly volatile from one day to another depending on the latest development in this field or as a result of any significant incident affecting the cryptocurrency ecosystem. As a result, cryptocurrencies are not very suitable for small investors who look for long-term investments or any investor who looks for stability from their investment.
2. Exchange Rates:
The value of cryptocurrencies is dependent on the trading volume of exchanges, which leads to instability. The exchange rates of cryptocurrencies are also subject to speculation. These rates also vary from one exchange to another, making it difficult for an investor to get a clear picture of the returns on their investment. Moreover, cryptocurrency exchanges often fluctuate or go down during high traffic periods, leading to losses due to transaction failure or price movements when an investor is trying to make a transaction.
3. No intrinsic value:
Traditional investments like stocks, bonds, or real estate have intrinsic value, i.e., physical property, to generate profits. Cryptocurrency has no such intrinsic value, and it’s all based on the demand and supply that drive the price.
4. Lack of transparency:
The cryptocurrency market is highly opaque and unregulated. All the cryptocurrency values are not backed with tangible assets. Any authority or government body does not regulate these digital currencies, so there is no official valuation for any cryptocurrency. As a result, there is no way to evaluate whether a particular investment in cryptocurrency is overvalued or undervalued by looking at its current market cap, price, or volume of trading because there are many other factors affecting its price fluctuations, as mentioned above.
5. Uncertain future:
Many experts have predicted that the cryptocurrency market will either take a downturn or go in a new direction within 2017. Unfortunately, there have been several predictions of this industry, and most of them have been wrong, which means that it remains to be seen what the future holds for cryptocurrency. The fact is that nobody knows for sure because cryptocurrency investments are highly speculative, so there’s little to no assurance that we’ll see any high returns on these investments.
6. Lack of security:
Unlike traditional securities such as stocks, bonds, or gold, cryptocurrencies are not backed by physical assets like gold or silver. They don’t involve any physical movement like transferring those assets between banks or other financial institutions. This makes cryptocurrency very vulnerable to hackers and malware. There is little regulation in this space; these digital currencies are like a cash cow for hackers who steal cryptocurrencies by gaining access to private keys.
7. Lack of user-friendliness:
One of the reasons traditional investors prefer investments in stocks, bonds, or real estate is that they allow them to choose their trading hours and days. For example, an investor can make daytime investments during weekdays while making weekend investments whenever they want because they hold physical assets such as stock certificates or bonds in their possession. Unfortunately, cryptocurrencies do not give you any options because they’re only available at specific times and locations. And this could be a problem for investors who have limited knowledge or experience in this area.
Future Of Cryptocurrencies And Their Market:
The cryptocurrency market is continually growing at a rapid pace. For the first time in recorded history, the value of cryptocurrency is now higher than the combined values of all cryptocurrencies that were valued one year before it reached that height. This indicates that the popularity of this new form of digital currency will continue to increase as more investors become interested in it and its market becomes even more diverse and robust.