Cryptocurrency has taken the financial world by storm. Capture the interest of investors who wanted to invest in digital assets and wanted to build a safe decentralized network. Cryptocurrencies often come with a promise of guaranteeing higher returns more than the initial investments. And the question arises with these investments – is it safe to invest in crypto? In this guide, we will learn about the safety of investing differently, the risks and benefits of investing in crypto and how to make the right decision.
Understanding Cryptocurrency
Cryptocurrencies are virtual or digital assets that use cryptography for enhanced security. Some of the most popular crypto currencies are called Bitcoin but there are many others such as Ethereum, Ripple, and Litecoin. All these digital currencies work on a technology called blockchain. Blockchain helps in creating our decentralized network that records all transactions done across various networks of computers.
The Allure of Cryptocurrency
High Returns
The key attraction of cryptocurrencies is that it can provide high returns for the value invested. Due to higher returns people are getting lured in investing in different crypto coins.
There are many early investors in crypto coins such as Bitcoin that have seen astronomical gains over the past decade. The investors see the potential gain and profits that helps them in investing in various cryptocurrencies.
Decentralization
Next promising thing about cryptocurrencies is that they are not controlled by any Central authority such as the government or any financial institution.
It has its own decentralized network that is appealing to many people who are wary of traditional banking systems and prefer more control over their investments.
Innovation and Technology
Third alluring factor about investing in cryptocurrencies is the line technology of crypto. As we all know that repro is based on blockchain technology that helps in various industries from finance to supply chain management. This technology has various benefits and keeps things secure for the users.
The Risks Involved in investing in crypto
Volatility
There are various risks involved in investing in crypto and one of them is the volatile market. Market prices keep fluctuating dramatically in a short period leading to significant losses and gains.
For example, Bitcoin prices today can be around $20000 but it can dramatically decline to $3000 in a few hours. As we saw in December 2017 bitcoin price was really $20000 later it dropped to $3000 leading to decline in market values.
Lack of Regulation
Next risk factor in the cryptocurrency market is that it is largely unregulated. As there are no regulatory bodies it can leave to fraudulent schemes such as initial coin offering that promises new investors high returns but fails to deliver to them.
Along with that there is the absence of regulation means that there is fever protection for investors as compared to traditional banking systems.
Security Concerns
The disadvantages of investing in crypto are the security concerns. Why blockchain technology is inherently secure is that they are platforms and exchanges where cryptocurrencies bought and sold which are vulnerable to the scammers. There are many crypto scams happening around the globe
Where away are high profile hacks that have resulted in loss of millions of dollars worth of the digital coins which highlight the importance of security measures in the crypto market. All the investors need to be careful while investing in the cryptos due to many security concerns apart from these.
Market Manipulation
Next risk factor in the crypto market can be its susceptibility to manipulation. People or sharks that are holding large amounts of crypto coins can influence prices by buying or selling them in bulk. Crypto markets can be easily manipulated to create artificial price movement, that is it can be taken higher or lower making it difficult for ordinary investors to predict market trends.
How to Mitigate Risks while investing?
Research Thoroughly
Before investing in any digital coin, every investor should conduct proper research. You also need to understand the technology behind the cryptocurrencies, potential use and the people involved in the development. Along with that white papers can also help you outline the purpose and mechanics of the cryptocurrencies which can be a good start for research.
Diversify Your Portfolio
Next step to mitigate any risk involved while investing is to diversify your portfolio. Never put all your money into one crypto coin instead try to spread your investment across different assets. This can help you reduce the impact of poor performing investment and can improve the profits.
Use Reputable Exchanges
You can also pick repeatable cryptocurrency exchanges to sell or buy your digital assets. Try to find exchanges with strong security systems, positive user reviews and a history of reliable connections. There are very well known exchanges that include Coinbase, Binance, and Kraken.
The Regulatory Landscape
There are different regulatory bodies and environments for various cryptocurrencies and can vary by region. There are countries that have embraced cryptocurrencies and have implemented clear rules and regulations. Welcome countries have banned or restricted their usage. For example, Japan has established clear frameworks for cryptocurrencies while countries like China have banned crypto trading and ICOs.
In countries like the US, the regulatory landscape is still complex with various regulatory bodies involved in overseeing different aspects of crypto coins. For example, The Securities and Exchange Commission (SEC) helps in overseasing ICOs and considers some cryptocurrencies as security. While regulatory bodies such as the Commodity Futures Trading Commission (CFTC) overlooks the
cryptocurrency derivatives.
The Future of Cryptocurrency
Cryptocurrency’s future is promising yet uncertain. As blockchain technology continues to advance and create more potential for these coins the mainstream will increase. As industries and sectors will continue to adopt blockchain that will help in growth of crypto coins and will lead to more investors in future.
However the market will continue to experience volatility and can face regulatory challenges. As the cryptocurrencies continue to grow, institutional adoption from many big companies like Tesla and Square will help in their growth.
Moreover, to legitimize and interrogative global financial systems, the Central Bank needs to explore the development of digital currency which can help them overcome these obstacles.
Conclusion
Hence in this blog we tried to answer the question: is it safe to invest in cryptocurrency? Well the answer depends on many risk factors, investment strategies and understanding of the market. Cryptocurrencies offer the potential for high returns but come with various disadvantages as well.
Before making an investment try to thoroughly research, diversify your portfolio, use reputable exchanges and stay informed of the trends. All these little steps can help you mitigate all the risk and heavy losses. Investing in crypto coins is not for the faint- hearted but it requires careful consideration and willingness to accept potential losses. So, if you are willing to accept the volatile market and complex world of currencies the potential rewards can be substantial.
