While investing, the risk is one of the top concerns which come to our mind at first hand. Since the crypto world is a recent discovery for most of the investors, relevant risks are crucial for understanding. Let me take the privilege to take you to the major risks involved in cryptocurrency investing activities.
Crypto-currency has not related to Bitcoin only anymore. It provides you a wide range of options and ways to invest in. There are more than 1600 named crypto-currencies available as options to invest. It provides an easy entrance for the investors but on the other hand, exit barriers are there. Technology-based constraints and issues are crucial factors which can be performing as an entry barrier. Currency convertibility is a potential risk when you are willing to exit as crypto-currency is not in domestic use. Crypto-market is still waiting to witness the peak, it is not there yet.
The intangibility of Crypto-currencies:
Crypto-currencies are intangible and illiquid in nature. This feature enhances the other features as convertibility and insurability in terms of risk. Altogether, these characteristics are worrying for an investor. Till now, any significant measure has not been taken to mitigate the mentioned risks and grey areas. Security to the investors, comparatively with the market of trading, is the crucial thing to handle. Moreover, these risks are inherited with the nature of crypto-currencies and cannot be eliminated. It always takes time to gain the investor’s trust and interest anyhow.
Fraud and Manipulation:
Crypto-currencies in today’s world is riskier due to its digital, intangible, and tech-based nature. It can be an easy target for cyber manipulation and fraud. The U.S. Securities and Exchange Commissions have considered this risk and seem intended to take part in awareness campaigns to mitigate investor’s risk. They have created a fake ICO (Initial Coin Offering) website as an alert to the market. In addition, the assets which lack clarity are mostly the ones having decentralized regulatory image that is not in control of one party. In parallel, company based assets have an upper hand in gaining confidence for cryptocurrency investing. All these security concerns have promoted physical solutions to ensure everything is in place while investing and holding your crypto. These are hardware wallets, an interesting topic to learn about.
Asset security and control is another thing to mention when it comes to risk with crypto-currencies. The successful crypto traders and investors are going miles to protect their intangible money by using storage devices which are kept in physically secured places like vaults and lockers. This is not something which a normal investor can do easily. There can be issues with availability and affordability but it can be evaluated better in reference to the asset value.
The tech-based intangible asset contains technical and computational complexity as in bitcoin mining. It is one of the technological limitations which are correlated to complexity. It can vary with the type of crypto assets. This type of risk is inherited but it can be compensated with clear and less complex controlling system.
Should one go for the investment in cryptocurrencies?
There are many risks in cryptocurrency investing as we discussed but on a wider note, the risk is directly proportional with the return. According to professional advice, in search of a high return, you should go for the investment in crypto-currencies by covering all the corners that are mitigating major risks involved.