Amidst the bear market, cryptocurrency investments still remain one of the most viable ventures in the business world. Certainly, the reason is not far-fetched – the digital asset class can experience an abrupt turnaround, thus making crypto-asset investors overnight millionaires. Of course, some might jump in and say: what is the point of investing if not to make money? Before you consider investing in cryptocurrencies to bring home the bacon, there are certain things you must pay attention to. Indeed, just as cryptocurrency investment can bring you a moneybag, it can also leave you flat broke if you ignore these six points we are about to share.
1. Market Volatility
Of all the things you have to deal with every now and then, market volatility is the most worrisome. Like a leech, it just sticks to the virtual currency market naturally. Indeed, this will make more sense when you grasp that the market is speculative. Let’s break it down for you. According to MVIS CryptoCompare Index, the cryptocurrency market has lost 80% of its entire value since January 2018. A sneak peek at how Bitcoin, for instance, has fared over this period under review will scare you off digital asset investments. You see, Bitcoin had a stellar performance on December 16, 2017 when it traded around $20,000 USD. But today, the story has changed as it struggles to maintain $6,400 USD, representing a roughly 68% price drop.
2. Regulatory Issues
Ever since it hit the Internet in 2009, one argument that proponents of Bitcoin and altcoins have maintained is that they are decentralized. Great as that might sound, it has some grave consequences. Indeed, it is a new asset class, so governments around the world, including the U.S. government, have yet to formulate coherent fiscal policy for it. While some countries have taken the plunge to roll out regulatory framework for digital assets, many still have cold feet. In all fairness, the countries that fall into the latter category are still observing cryptocurrency. Now, how does that affect you? Well, it means that its legitimacy, taxation status, and trading rules are risks. How sad!
3. Consumer Protection
Unlike traditional banks, virtual currencies have no insurance or official safeguards. For instance, the Federal Deposit Insurance Corporation plays a key role in protecting your savings and investments. Indeed, it underwrites your savings in brokerages and banks to the tune of $250,000 USD. Sadly, the fiscal policy doesn’t cover virtual currency. While it is normal for you to get a refund upon cyber incursion on your brokerage, credit card, or account, that’s not usually the case with cryptocurrency exchanges. In recent times, there have been frequent cases of cyber incursion on exchanges. So, if something goes wrong with your wallet or cybercriminals attack your cryptocurrency exchange, you could literally lose everything. Again, before you invest a dollar in the cryptocurrency market, keep in mind that you run the risk of losing everything. We are not done yet!
4. Market Manipulation
Here’s another thing. Although it hasn’t been proven yet, there have been talks around the cryptocurrency circus that market manipulation, insider trading, and collusion are commonplace. For this particular reason, the U.S. investment watchdog, the SEC, has struck down countless Bitcoin ETF proposals submitted for its approval. As the saying goes, there is no smoke without fire.
Along a similar vein, experts believe that a powerful small group of whales influenced the crypto rally of 2017. Also, there have been cases where some coins rise unexpectedly, and then dramatically drop in a matter of hours. Wondering why this happens? Put simply, the manipulators behind it are capitalizing on investors’ FOMO (fear of missing out). The SEC calls it “pump and dump.”
There is another manipulative tactic called sell walls, where someone accumulates coins when they are cheap to sell when they go up. In addition, there is a dark pool, where someone trades away from the cryptocurrency exchange’s eagle eyes.
Given that cryptocurrency is not regulated, all these questionable schemes become the order of the day, posing risks to investors’ deposits.
5. Cryptocurrency Scams
Unfortunately, cryptocurrency scams have become a norm in the crypto space as they are now commonplace. Statistically, in the second quarter of 2018, $2M USD was lost in cryptocurrency-related exit-scams and schemes. Indeed, the use of social media platform Twitter bots and ICOs have proven common methods. ICO is the crypto version of an IPO. While it is reasonable to do some due diligence before investing in them, many new investors fail to do so, due to unbelievable promises that the issuers offer. In the end, they add to the unending list of fake ICO victims.
On the other hand, Twitter bots help scammers create Twitter accounts of famous personalities, making them look genuine. They make promises of juicy token giveaways, but on the condition that the beneficiaries credit the wallet of the masked Twitter user first. Once the intended beneficiary credits the wallet, the masked user disappears into thin air.
6. Human Error
In all fairness to the cryptocurrency space, human error exists in all facets of life. However, it gets worse with cryptocurrency. Without experience in FOREX trading and investing, navigating on cryptocurrency exchanges can be confusing. No doubt, some exchanges like Coinbase are user-friendly, but using others, such as Bitfinex, might not leave first-time users with good user-experience memories.
The most common mistakes you are vulnerable to include sending coins to the wrong wallet, incorrect orders, and you may even end up locking yourself out of your account. Amazing!
Sadly, some trading platforms don’t offer password reset services, making them very rigid. Similarly, you run the risk of mismanaging your crypto storage. In addition to that, another human error that you have to grapple with is losing your private keys. In that case, you can neither access nor utilize your assets.
Final Words
Although there are many other things to consider before investing in digital currency, we consider the aforementioned six things the most important of them all. So, before handing your hard-earned digital assets to someone, research everything cryptocurrency – yes, due diligence is critical.
While it is not our place to give you expert advice, you shouldn’t borrow to invest in cryptocurrency. As a beginner, start with a little investment and go bigger when you get better at it. Indeed, cryptocurrency trading and investment may be just what you need to cash out your biggest paycheck, buy a new crib and whip (car). Consider it.
Risk Disclosure
This article should not be taken as, and is not intended to provide, investment advice. Users are ultimately responsible for the investment decisions he/she/it makes based on this information. It is your responsibility to review, analyze and verify any content/information before relying on them. Trading is a highly risky activity. Do consult your financial adviser before making any decision. Please conduct your thorough research before investing in any cryptocurrency and read our full disclaimer.
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