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Risks You Should Be Aware of before Investing in Cryptocurrencies

Risks You Should Be Aware of before Investing in Cryptocurrencies

Even though cryptocurrencies have been around for over ten years, the number of people starting to get involved has only recently begun to rise. New technologies, especially controversial ones like cryptocurrencies, don’t usually get the support they deserve in the first stages as many people are skeptical about things they don’t fully understand.  

However, you would be surprised to find out most people don’t know as much as you would expect about the technologies behind their investments. Many investors see cryptocurrencies as investing in stocks or company shares in that they don’t need to know too many details to get involved, but they need to know it’s profitable. 

Although there were quite a few early adopters, not everyone sees cryptocurrencies as a long-term investment. Many early adopters sold their crypto way too soon, which only demonstrates the virtue of patience in holding cryptocurrency. The amount of money you invest can stagnate for a long time, only to make a sudden movement. Cryptocurrency prices can go in either direction fast, so even if you have experience trading stocks or bonds, you should always be prepared for the unexpected. 

Investing in Digital Assets 

If you want to become a digital asset investor, you should be aware of the challenges you’ll face. Regardless of previous investing experience, many digital asset investors buy on a whim, only to see their investment diminish in value. While digital assets are more accessible to investors, they can also be riskier.  

As a digital asset investor, you must research before investing and be strict about what makes it to your portfolio. If you are considering getting involved with cryptocurrencies, whether by investing to hold on to it or to trade it, there are some risks that you should take into consideration. 

Cryptocurrencies Can Be Volatile 

Even with the advanced technology supporting cryptocurrencies, it was the unbelievable price jump that first got crypto on the news. Many factors can influence price changes in cryptocurrencies, like exchanges listing or delisting coins.  

Some exchange platforms have limitations regarding the countries they accept to work with, and not all coins are available for trading on each platform. The number of new cryptocurrencies is continually rising, so some holders occasionally decide to take their crypto holdings and reinvest in a new project that seems more promising for the time being. 

Regulations for Cryptocurrencies Can Vary 

Whether you invest in cryptocurrencies by buying, mining, or trading, you have to be mindful of the financial regulations for your actions where you live. For example, if you have a big mining operation, you might qualify for different electricity rates on the industrial level.  

Even though most crypto investors around the globe use international platforms, you have to make sure the payment procedures apply to your country, as well as ensure you’re okay with your chosen platform’s currency exchange rates. People usually pay tax on the difference between the money they put on an exchange and the amount they withdraw, but keep in mind that you should also check how your country is taxing cryptocurrencies. 

Some Cryptocurrencies Are More Susceptible to Hacking 

While the odds of a responsible crypto holder losing their coins are practically nonexistent, there are network attacks that can make you lose a significant amount of money. When one mining party controls over half of the network mining hash rate, the computing power allows them to prevent transaction confirmations and even reverse transactions. The cost of a 51% attack for most cryptocurrencies makes it infeasible, but you should still be careful when choosing to invest in a new coin. 

Always Do Your Own Research 

Before you start trading, make sure you choose a platform offering minimal fees and the widest selection of coins. The platform you choose should provide several methods to upload and withdraw funds, whether in crypto or fiat.  

Before you choose a trading platform, make sure they are transparent about their fees. Some exchanges offer the option of staking your coins, which you should take advantage of if you do not actively trade with them. 

Keep in mind that network updates can affect trading on multiple platforms, so keep yourself informed about hard forks and how they affect the network. Many users start margin trading or trading bots without being informed about how to make the most of those options, losing significant amounts of money in the process. 

Are Cryptocurrencies the Right Investment for You? 

Whether you already have previous trading experience or are thinking about making cryptocurrencies your first investment, you should accept the unique potential risks of crypto. Cryptocurrencies hold the promise of revolutionizing the financial industry around the globe, and you can be a part of it too. 

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by Dirk DeBie // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.