It’s Invest Diva’s Kiana Danial https://www.investdiva.com/ with NewsBTC and here is your cryptocurrency update.
While I love cryptocurrencies and believe they are our economic future, in today’s educational piece, I’d like to cover the seven most important risks involving cryptocurrency investing.
#1: Hype Risk
The number 1 risk with cryptocurrencies is the hype. While getting hyped up in the thought of buying your dream car is a good thing, the hype surrounding cryptocurrencies is not always as exciting. The main reason why there is a lot of hype with cryptos is that most people don’t know about what they’re investing in. So instead, they end up listening to the crowd. The crypto hype back in 2017 was one the many drivers of the fast-and-furious market surge. Once people started to figure out what they’ve invested in, the prices crashed.
#2: Security Risk
The second crypto risk is Security. Scams, Hacking, and Theft have been a common theme in the cryptocurrency market since bitcoin’s inception in 2009. And with each scandal, the cryptocurrencies’ value is compromised as well, although temporary. There are three main ways your cryptocurrency can be compromised. Therefore, it is very important that you follow the safety precautions in every step of your cryptocurrency investing strategy.
#3: Volatility Risk
The third risk is volatility. Volatility risk is essentially the risk in the unexpected market movements. While volatility could be a good thing, it can also catch you off-guard sometimes. Just like any other market, the cryptocurrency market can suddenly move in the opposite direction from what you expected. If you are not prepared for the market volatility, you can lose the money you invested in the market.
#4: Liquidity Risk
The fourth risk is liquidity. By definition, liquidity risk is the risk of not being able to sell (or liquidate) an investment quickly at a reasonable price. Liquidity is important for any tradable asset. Cryptocurrencies can see episodes of illiquidity. Heck, the liquidity problem was one of the other factors which led to the high volatility in bitcoin and other altcoins that we just talked about. On the bright side though, as cryptocurrency investing becomes more available and acceptable, the market could become more liquid.
#5: Vanishing Risk
The fifth risk is vanishing. No, I’m not talking about magically getting vanished in the ever-magical blockchain industry. Quite the contrary. There are many cryptocurrencies that could vanish before our very eyes. There are currently hundreds of different cryptocurrencies out there. More and more cryptocurrencies are being introduced every day. In ten years time, many of these altcoins may vanish while others flourish.
#6: Regulation Risk
The sixth risk is regulation. One of the initial attractions of cryptocurrencies was their lack of regulation. In the good old days in the crypto-land, crypto enthusiasts didn’t have to worry about the governments chasing them down. All they had was a white paper and a promise. However, as the demand for cryptocurrencies grows, global regulators are scratching their heads on how to keep up — and to not lose their shirts to the new economic reality.
#7: Tax Risk
The final risk I’d like to mention today is tax. When cryptocurrency investing first got popular, hardly anyone was paying taxes on their gains. There was a lot of underreporting going on. However, as the market gets more regulated, the authorities could become stricter on taxation. As of 2018, the IRS views bitcoin and other cryptocurrencies as property. That’s despite the fact that they have the word “currencies” in them. Therefore, transactions using altcoins are subject to capital gains tax. Thanks for watching, invest responsibly, and I’ll see you with more updates next time.
