Twelve years after its creation, regulating cryptocurrency is still complicated in most countries. That’s just one of the investment risks in 2021.
One of the top questions people usually ask is whether or not Cryptocurrency is indeed a good investment. The answer to this question is quite tricky because it could be a good investment, or it could not. Cryptocurrency can either get you filthy rich or you could also end up losing your money.
Just like any other investment, crypto assets come with lots of risks, but also plenty of potential rewards. However, without a doubt, Cryptocurrency is a great investment, especially if you want to acquire direct exposure to the demand for digital currency.
Want to know how good or bad this investment is? Continue reading this piece.
Is Cryptocurrency safe?
There are a number of risks associated with holding and investing in cryptocurrencies. For instance, crypto exchanges have been quite vulnerable to hacks and other criminal activities. These security violations have led to significant losses for several investors who have had their digital currencies stolen.
The risks of trading cryptocurrencies are mainly related to their volatility. They are high-risk and speculative, and it is important that you understand the risks before you start trading.
Some of the other reasons why Cryptocurrency is a risky investment are:
- Volatile in nature
- Susceptible to error and hacking:
- Can be affected by forks or discontinuation
Risks associated with investment in cryptocurrency
Experimental phase risk
It should be noted that the concept of cryptocurrencies itself is innovative. There are no historical data and experience that allow you to assess how much you can trust it. Bitcoin, like other cryptocurrencies, is still under development. Thus, something completely unexpected could happen to it
The risk of a bug in the Bitcoin protocol’s software is low but not zero. The introduction of upgrades such as “Taproot” brings new code to the bitcoin currency’s underlying protocol that may make its technology open to new attack vectors.
Due to the ambitious goals of the upgrade, there is a higher probability of code bugs and failures through the implementation of Ethereum 2.0 on Ethereum than Bitcoin’s Taproot upgrade.
Cryptocurrency cost fluctuations are completely unpredictable in the short term. It adds to the riskiness of this asset. Financial analysts can more or less accurately predict the value of real currencies or stock quotes based on data from the outside world. But to predict exactly how much Bitcoin will cost tomorrow is almost impossible.
The absence of a well-thought-out unified system for regulating cryptocurrencies only increases the uncertainty factor regarding their future. Government agencies are concerned about using cryptocurrency for speculation, money laundering, drug trafficking, and other illegal financial transactions.
Virtual currency frauds
Potential investors should be wary if someone promises them guaranteed high profitability; offers to buy Bitcoin, when no one laid out offers to sell them; when buying or selling is surprisingly “good,” or unknown persons attempt to create a false sense of urgency of investment, leaving no time for calm thought.
Why you should consider investing in Cryptocurrency?
To some people, Cryptocurrency could remain niche or vanish just like that. But Cryptocurrency should be considered a high-risk investment just like any other investment. With more and more businesses accepting crypto, it is now evident that Cryptocurrency is here to stay and it will not disappear any time soon.
Some of the big brands that have accepted crypto include Starbucks, Tesla, and other top casinos. This proves that crypto will soon find its way into so many big brands, making it a worthy investment.
Just like any other investment, before you invest in crypto, you need to do extensive diligence and don’t pin your hopes on one cryptocurrency or one company. The best decision is to spread your money across so that you can spread the risk.
Disclaimer: Remember to invest only what you can afford to lose.
Which are the three biggest cryptocurrencies?
- Bitcoin, the best-known and first major cryptocurrency launched in 2009 and remains the market leader. Its market capitalization — effectively its total worth — is $1.017bn, as of April 28, 2021.
- Ethereum and Binance come in second and third, with respective market caps of $302bn and $85.5bn.
- Since 2009, a wide range of challenger cryptocurrencies, dubbed altcoins, have arrived on the scene to try to rival bitcoin.
- You might also have heard of Ripple ($61.7bn), Tether ($50bn), and Dogecoin ($37.9bn).
Investing in Cryptocurrency today is a very risky undertaking. There is no guarantee of minimum profitability or, at least, break-even investments. All investors who are going to work with cryptocurrency today must understand what the currency is about. Have a clear plan of action for all sorts of scenarios.
In addition, an inexperienced investor should invest only the amounts that he is willing to lose without serious consequences.