Investment in cryptocurrencies continues to boom. And no wonder: these digital currencies’ attractiveness arouses millions of investment interest worldwide. However, many people need to learn the most prominent risks of investing in them. An investment can be very profitable and positive but can carry serious risks depending on the trader’s experience.
The risks of investing in cryptocurrencies
No, we don’t want to scare you. As you already know, every investment involves a series of risks that you must assume. However, cryptocurrencies are a different asset: digital currency, a relatively new product in the markets, has unique characteristics you should be aware of. They are as follows.
Lack of regulation by agencies
Nobody regulates these cryptocurrencies. In other words, they are not supervised by governments or central banks. It has a positive side: the absence of interventionist organisms that alter prices. However, the worst comes if you have a problem with this speculation or investment: you need the official backing of central banks. There have been cases of fraud, price manipulation and other illegal activities.
Exposure to possible computer attacks that steal data or money
In recent months, cryptocurrencies have been the target of different computer attacks, including the theft of millions of dollars in bitcoins and other virtual currencies. Attacks are highly organized by professional hackers from the most remote parts of the world.
Volatile and illiquid cryptocurrencies
Many investors take advantage of volatility to speculate and make quick profits. Still, there are traders unfamiliar with large fluctuations, which affect not only the trade’s quality but also the trader’s mood. Also, with so many movements, you can lose much money quickly, getting caught in the currency or executing our stop loss.
In addition, this volatility produces critical gaps to the upside or downside; that is: prices jump quickly and, with it, complicate the technical analysis. Finally, volatility can also lead to severe liquidity problems. That is, many sales and few people are willing to buy, which causes an added problem when marking prices.
Investing in cryptocurrencies and suffering system disruptions
They are known as interrupts or forks. Every trader should be familiar with both terms, especially with forks, which are highly known because they do not have actual prices in the underlying market.
The costs of investing
Remember that many brokers raise their commissions if you want to invest in cryptocurrencies. The cost of operations must be considered, subtracting it from the profitability it can generate for us. All brokers apply commissions, and we must always consider that they reduce profits.
Do not trust intermediaries that assure you high returns. Because yes, you can make a lot of money speculating or investing in cryptocurrencies, but most likely, they hide the risks of betting with virtual currencies. Avoid technical language, demand great information about the currency, and, on the other hand, know your needs.
Cryptocurrencies are one more option to invest. However, these digital currencies have a different operation, and, in addition, they carry a series of risks that you should know.