Although I love cryptocurrencies and am convinced that this is our economic future, in today’s training I want to cover the seven most important risks of cryptocurrency investments. When you learn about the risks, you will focus on your game. If you know your risk tolerance, you can develop a strategy that protects you and your assets. The risk associated with cryptocurrencies comes from many different sources.Here are the seven most important risks of cryptocurrency investment. More information on these risks can be found in Cryptocurrency Investing books.
Crypto Hype Risk
The thought of buying your dream car is a good thing, but the Hype about cryptocurrencies is not always so exciting. The main reason there’s so much hype about cryptos is that most people don’t know what they’re investing in. Instead, they listen to the crowd. The crypto hype in 2017 was one of the many drivers for the fast and furious market push. As soon as people found out, they read an article about the crypto rush and immediately invested more. Also the gambling scene grew at the same time since people wanted to get quick profits through games like poker or slots. You can learn more about crypto casinos at https://www.funsatoshis.com/casinos/bitstarz-com/.
Manage Risks with Cryptocurrency Systems
Before you are interested in market noise, you should be familiar with the specific cryptos you want to purchase. There are many ways to make a lot of money in the cryptographic market. You should be patient and acquire the right knowledge instead of relying on the current hype. An investor who deals with the hype probably has no investment strategy – unless you call gambling a strategy!
Security Risk
Scam hacking theft. This has been a common issue in the crypto currency market since Bitcoin was founded in 2009. And with every scandal, the value of crypto currencies is also affected, even if only temporarily. There are three main types on which your crypto currency can be compromised. Therefore, it is very important that you take security precautions at every step of your crypto currency investment strategy.
Manage Risks with Cryptocurrency Facilities
The cryptocurrency itself: There are already hundreds of cryptocurrencies for investment, with thousands of new ICOs (Initial Coin Offerings) on their way. If you choose the cryptocurrency you want to invest in, you need to learn about its protocol and make sure there are no errors (or error rumors) that could jeopardize your investment. You can read about the cryptocurrency protocol in their whitepaper on their website. However, they are unlikely to share their flaws there. Reading reviews on savvy websites like InvestDiva.com is often the best choice. Risks of cryptocurrency investments – cryptocurrency investments for dummies
Exchange: In exchanges you exchange the cryptocurrency markers. You must ensure that your trading host is trustworthy and credible. There have been countless security incidents and data breaches in the Crypto community due to the exchange.
Your wallet: Once you’ve passed the first two security checks, it’s on to the final round. This is all in your own hands. While you’re not physically carrying your crypto coins, you can keep them safe in a secure physical wallet. You actually store the public and private keys in these wallets. This way you can use these keys for transactions with your old coins. In addition, you can upgrade the security level of your wallet to a higher level by using a fuse. Chapter 5 of Cryptocurrency Investing for Dummies explains wallet security methods in more detail.
Volatility Risk
The volatility risk is essentially the risk of unexpected market movements. While volatility can be a good thing, it can sometimes hit you unprepared. As in any other market, the cryptocurrency market can suddenly move in the opposite direction than you expected. If you are not prepared for market volatility, you may lose the money you have invested in the market.
The volatility in the cryptocurrency market is due to many factors. First, it is a brand new technology. It is well documented that the introduction of revolutionary technologies – such as the Internet – can cause initial phases of volatility. It takes a lot of getting used to before blockchain technology (see Chapter 6 of Cryptocurrency Investing for Dummies ) and its underlying crypto currencies become mainstream.
The best way to combat the volatility risk of the cryptocurrency is to look at the overall picture. Volatility is very important if you have a short-term investment horizon (see Chapter 17 ), as it is an indication of how much money you could earn or lose in a short period of time. However, if you have a long-term horizon (see Chapter 18 ), volatility can be an opportunity.
Liquidity Risk
Liquidity risk is by definition the risk that an investment cannot be sold (or liquidated) quickly at a reasonable price. Cryptocurrencies can also detect cases of illiquidity. Heck’s liquidity problem was one of the other factors that led to the high volatility of Bitcoin and other legacy coins described earlier in this chapter. There is also a risk of price manipulation if liquidity is low. A big player can easily move the market in his favour by placing a massive order.
On the positive side, if cryptocurrency investments become more available and acceptable, the market could become more liquid. The increasing number of trusted crypto exchanges will offer more trading opportunities.
When selecting a cryptocurrency for trading, you need to consider its liquidity by analyzing its acceptance, popularity and the number of exchanges on which it was traded. Lesser-known cryptocurrencies may have a lot of upside potential, but could get you into trouble due to lack of liquidity.
Part 2 of Cryptocurrency Investing for Dummies examines different types of cryptocurrencies and their characteristics.
Risk Of Disappearance
No, I’m not talking about a magical disappearance in the always magical blockchain industry. On the contrary. There are many cryptocurrencies that could disappear before our eyes. There are currently hundreds of different cryptocurrencies. More and more cryptos are being introduced every day. In ten years, many of these old coins may disappear while others thrive.
A well-known example of a disappearing risk is the dotcom bubble. In the late 1990s, many people around the world dreamed of the popularity of the Internet. Some, like Amazon and eBay, were able to conquer the world. Many crashed and burned. Following the path of history, many of all booming cryptocurrencies that jump left and right are forced to break.
Administration Risks
To avoid the disappearing risk, you need to analyze the basics of the crypto currencies you are investing in. Does your goal make sense to you? Do they solve a problem that will continue in the coming years? Who are your partners While you cannot make the disappearing risk disappear completely (pun intended), you can eliminate the risk of a sudden bust. Further information on fundamental analysis can be found in Part 2 of the book Cryptocurrency Investing for Dummies .
Regulation Risk
One of the main attractions of cryptocurrencies was their lack of regulation. In the good old days in crypto land, crypto enthusiasts didn’t have to worry about governments killing them. All they had was a whitepaper and a promise. With the growing demand for cryptocurrencies, however, global regulators are scratching how to keep up – and not lose their shirts to the new economic reality.
How To Manage This Risk
The cryptocurrency regulation risk could be divided into two components. The regulation risk and the type of regulation itself. The future of cryptocurrency regulation appears to be bright at the moment, but could have an impact on the markets in the future. However, if the market becomes stronger, these effects can become isolated events. Join our Premium Investing Group to be one step ahead of regulatory risks.
Tax Risk
When cryptocurrency systems first became popular, hardly anyone paid taxes on their profits. There was a lot of underreporting. However, as the market becomes more regulated, the authorities could become more tax-strict. From 2018, the IRS will consider Bitcoin and other cryptocurrencies as property. Despite the fact that they contain the word “currencies”. Therefore, transactions with Altcoins are subject to capital gains tax.
How To Manage This Risk
different countries, different rules. Personally, I was hit hard by taxes when I moved from one country to another or Congress made changes to its tax laws. Fortunately, I was able to cover taxes elsewhere. If I did not have enough savings in my emergency fund, I would have had to apply for an extension and pay a penalty. Therefore, it is important that you carefully review your tax liability before developing your investment strategy. For more information on taxes related to crypto currencies, see Chapter 21 of my book Cryptocurrency Investing for Dummies.
Risk management is an essential part of a successful investment. In addition, a diversified portfolio could help you achieve your financial goals faster and easier. Join our investment group to get the latest investment strategies, stop loss, take profit and other limit order ideas for cryptocurrencies, forex and equities. Our comprehensive signals will help you develop a unique strategy for your risk appetite.