Do the Risks of Trading in Cryptocurrencies Offset its Potential Rewards?
Who would have thought that time will come when people will be trading millions of dollars for an asset that is backed up by nothing but hype and noise - cryptocurrencies.
The unprecedented rise in prices for cryptocurrencies such as Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ripple (XRP), Zcash (ZEC), and etc have attracted lots of attention from the public.
Even the average Jane and Joe wants a piece of this juicy pie. This is despite the fact that there are serious risks involved in this business opportunity.
In this article, I will be sharing with you the most common risks you need to be aware of should you decide to start a career with crypto trading.
- Does the risks of trading in cryptocurrencies still make it a worthy investment?
- Should you loan money or even to put your life savings into crypto trade?
You will find out in a few moments.
The Risks Of Trading in Cryptocurrencies
Although volatility is part of any online trading, trading in cryptocurrencies exposes you to higher risks. This is because no one really knows how these assets are valued.
Let’s look away from Bitcoin for a moment and take a look at Ethereum - another popular cryptocurrency.
Some time ago, Ethereum’s value went up by 4000% within six months. Unfortunately, whether ETH’s value will continue to rise or drop 4000% within the same period - no one really knows.
The sharp rise and decline in the value of cryptocurrencies in the past years has caused some severe issues in the business industry.
For example, On 24th of January 2018, the online payment firm Stripe announced to end its support for Bitcoin payments by late April of the same year.
As of today...
Stripe does not support payments using BTC anymore, citing that the sudden booms and busts have made the cryptocurrency (Bitcoin) “less useful for payments.”
When trading in cryptocurrencies...
You can potentially make loads of money, or it could backfire and you could get burned. The volatility of cryptocurrencies can either take you to the top or exponentially reduce your investments to dust.
#2 Market Manipulation
The price of most cryptocurrencies are based on nothing, unlike the regular financial assets such as the currency (real currency, e.g., USD, EUR, JPY) which is based on the country's economy, trade surplus, etc. or, the stocks price that is based on a company's financial performance.
Most cryptocurrencies are based purely on supply and demand, which can be manipulative.
Although there are no solid proofs, it is very likely that anyone with a huge capital can run the price up and crash the market. This is commonly referred to as “pump and dumps.”
It can be like a placebo effect where a person or a group of people starts an uptrend for a particular cryptocurrency. This makes other people believe that the trend is going up.
If their tactic works, it will thereby cause a massive influx of buying activities (this is why it is manipulative).
To further explain...
Any company's stock can be manipulated by the majority shareholder, and that's why the stock market is tightly regulated. This is to ensure that there are no major shareholders who play dirty (insider news).
In crypto trading, however, there is no regulatory body!
One example is in December of 2017, the price of Bitcoin hits the height of almost $20k per coin, and in just a day, it lost one third of that. In the next three months, Bitcoin lost almost 60% of that value.
During the time of its peak, everyone was optimistic about Bitcoin. Some "experts" even say that the price will never go down and even hit $50k per coin (placebo effect).
But as you can see, Bitcoin's price never went back to what it was. A similar story goes for all other mainstream altcoins.
#3 Cryptocurrency Hacking
In terms of hacking, although malicious parties can't hack the framework of the block-chain, they can hack the crypto wallets. Cryptocurrencies are usually stored in a crypto wallet.
Hacking and theft of Bitcoin and other cryptocurrencies have been documented on numerous occasions.
If you are planning to start a career in crypto trading, this is one thing you should be wary about.
#4 Forgetting Your Password And Misplacing Your Cryptocurrency
To avoid getting hacked, you can store your altcoins (cryptocurrencies) away from crypto wallets into an offline “cold storage.”
But then, this raised another issue.
There had been multiple recorded occasions when individuals reportedly lost their cryptocurrencies!
I know it's hard to fathom how someone can misplace something that is not tangible in the first place, and it might sound a little funny, nevertheless it is true.
Take the case of James Howells, a UK resident who apparently lost his hard drive with the key to more than $79 million in Bitcoins!
Another risk in trading with crypto currency is forgetting or losing track of your password. When such things happens, you will lose the ability to access the your funds. This particular case happened to Matthew Mellon.
According to Forbes magazine...
Mellon was worth an estimated $1 billion because of his extraordinary gamble in Ripple but after his death, his fortune is lost with him.
#5 Cryptocurrency Scams
Scams involving cryptocurrencies are rampant these days. The chances of buying into fraud are increasing with the introduction of a lot of junk altcoins.
For a new investor...
It is easy to fall into one of these scams. The most common place for crypto trading scams is fake ICOs (Initial Coin Offering).
#6 Anonymous Transactions
Another risk involved in this industry is that cryptocurrencies are most likely a safe haven for black market transactions. This is because of the anonymity of cryptocurrency transactions.
This raise serious concerns in different government sectors all over the globe.
In fact, on 22nd of January 2018, South Korea brought in a regulation that requires all the bitcoin traders to reveal their identity, thus banning anonymous trading of bitcoins.
While for many, the possibility of generating spectacular returns is the key attraction of this highly volatile and unstable industry...
- Do you think the risks of trading in cryptocurrencies worth the potential rewards?
Please share your thoughts in the comment section below.
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How To Minimize and Possibly Nullify the Risks of Trading in Cryptocurrencies?
If you really want to invest in cryptocurrency, then you have to do a lot of research on the white paper, and its usage.
A white paper in the cryptocurrency space is a document presented by a start-up to inform and encourage investors to participate in the start-up’s ICO. It contains technical and in-depth discussions on the project that the start-up is building.
There is no point in buying a cryptocurrency that no one uses. That's why in crypto trading, the risk is higher when you buy new ICOs because you never know if the price of the coin will tank.
I also suggest that you do intensive research about online trading alongside the basic knowledge about cryptocurrencies.
If you have no experience in online trading, investing, or FOREX, chances are crypto exchanges can be very confusing for you.
Crypto Trading Alternatives
If at this moment you realized that trading in cryptocurrencies is not your particular cup of tea...
Then I highly suggest that you take a look at other online business opportunities instead.
For example, if you want to make a 6-figure income while trading in cryptocurrencies, you can do the same with significantly lesser risk with this online business program.
Is Trading Cryptocurrencies For You?
If the reason for your enthusiasm to start trading in cryptocurrencies is perhaps you are thinking that this is a Get-Rich-Quick scheme...
I am sorry, but you are terribly mistaken. Perhaps you need to do more research on this matter.
Many people have already wasted time, lost money, and gained nothing but stress from trading cryptocurrencies because it is something that they do not fully understand.
My Sincere Advice
However, if you are confident that the risks of trading in cryptocurrencies are nothing to be worried about and that you already possess the necessary knowledge and skills to manage them...
Then, by all means, you can give this opportunity a try.
But my advice is that trading cryptocurrencies could result in you losing everything you invested. Never invest more than you can afford to lose and more importantly...
Do not put your life savings in the line!
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Thank you for taking the time to read this article on the risks of trading cryptocurrencies. I hoped that this has been useful to you in making an informed decision.
If it isn't too much to ask, kindly share this to the people you know so they too could benefit from this kind of information.
If you have further questions about this matter, you can contact me directly.
Meanwhile, if you have more valuable information about crypto trading that you would want to share to our readers...
Please feel free to utilize the comment section below.
Until next time and always remember, be safe and protect yourself from scams and fraudulent investments by acquiring the necessary knowledge.