Cryptocurrency is still a relatively new investment option, so many people are cautious about it and don’t know whether they should invest in it or not. It doesn’t work in the same way that other currencies do, and the market trends are different from stocks and shares, for example.
If you are on the fence about cryptocurrency and you want to learn more, this article will tell you the basics. If you do decide that you want to invest in cryptocurrency, it’s important that you understand the risks before going in. This is true of any investment but it’s particularly important with cryptocurrencies because they are new and they are different from other investments you might have experience with. So, these are the big risks you need to be aware of before putting your money into cryptocurrency.
Fake Exchanges and Wallets
You buy your cryptocurrencies through an online exchange, and finding the right one is the first step on your investing journey. There are some great safe and secure crypto trading platforms out there where you can quickly and easily buy a range of different cryptocurrencies. Unfortunately, there are also fake exchanges that will take your money and disappear. A lot of new investors get caught out by these scams and lose a lot of money. Once you have bought cryptocurrency, it needs to be stored in a digital wallet. There are also fake wallet sites out there that will steal the cryptocurrency from you. It’s important that you spend some time researching different options for exchanges and digital wallets to ensure that you don’t get ripped off.
Lack of Regulation
The regulation around cryptocurrencies is still being developed and as such, it is quite limited. It is also regulated by a number of different agencies at state and federal level in the US. In the UK, cryptocurrency regulation is relatively limited and quite vague, which does mean that it’s riskier than traditional investments. The lack of regulation means that the markets are prone to big fluctuations, which can be good but can also be very bad for investors. There is also more potential for market manipulation with cryptocurrencies because they are less regulated. The tax implications can be quite confusing too because these investments are not clearly defined. Many people steer clear of crypto entirely because they are concerned about accidentally making mistakes with their taxes and being penalised as a result.
Although legislation is starting to catch up, there is still a long way to go before cryptocurrency is properly regulated.
Low Market Adoption
The market adoption of cryptocurrencies is relatively low, meaning that it’s not used by many people outside of the investing world. At the minute, while the technology is still relatively new, this isn’t necessarily a cause for concern. As regulation improves and cryptocurrencies become more widespread, there is a strong chance that market adoption will increase, and the value of crypto will increase at the same time. However, there is also a chance that it will fade away and the value will plummet, leaving investors with big losses.
Before you put your money into cryptocurrency, make sure that you have considered these potential risks.