Cryptocurrency has become the buzzword for everyone who is into investing and trading. The reason is that cryptocurrency has introduced a decentralized and more democratic alternative to government-controlled fiat currency.
The concept of crypto has thrown open doors for new investment opportunities while widely being discussed as a viable option for any trader’s portfolio. Since big tech firms, brands, and businesses started accepting cryptocurrencies as a payment method, they have also been used not only as an investment but also as an asset.
In this article, we will cover every prospect of cryptocurrency and what potential it holds in becoming a mainstream currency and real-world utility
How Safe is Cryptocurrency?
Crypto is actually the safest investment possible. If you know how blockchain technology works, then you would also know that Bitcoin is one of the most secure networks. Every transaction on the blockchain is cryptographically encrypted and transparent in nature due to the distributed ledger system.
With the growing market, Capital management funds have started to receive approvals for crypto ETFs and big banks are also providing crypto-related services to their clients.
Market volatility is one major thing for crypto to address. But you can expect your investment to grow till the end of the time. Always remember to book profits from your investment. The crypto market swings 20% on a daily average and over 250% in a year. Some cryptocurrencies like Doge and Shiba Inu have gained 1000%. However, they have dropped significantly from their ATH values.
The risks involved in cryptocurrency are inherent risks of theft and other financial crimes. However, keeping them in mind, crypto projects have come up with ways to tackle them.
Not to forget, amid the ongoing brutal crypto winter, the collapse of one of the biggest exchanges FTX has brought the crypto community to its knees.
Recovery is certainly possible but the recent fallout led company after company into trouble. This turmoil has posed many questions about months of instability and turmoil in the crypto space. The upside of cryptocurrency is that it gives huge returns, but only to those who can risk it to fall into pit bottom yet have undying hope to see light at the end of the tunnel.
Risks Involved in Cryptocurrencies
Investments in cryptocurrencies are often considered risky due to various reasons. However, it’s typical for crypto to undergo a series of boom-and-bust cycles, and a number of crypto investors have taken a hit over the years along with making profits. Well, HODL culture will stick around anyway because crypto has a history of always coming back stronger after every downturn.
If you are interested in unwinding your irrational investments, you can use various tools like Bitcoin Bank Breaker, to make informed trading decisions. Before you go ahead, remember, selecting an exchange is not the only risk, there are multiple factors involved in cryptocurrencies that can further be categorized into four types:
- Software Wallets Risks
Your software wallet comes with two major hitches, it depends on the safety of the computer you use to access it and the safety of the software itself. It’s not usually recommended to trust a new wallet that has never been “stress-tested” in an open online environment. You will be better off with a reliable wallet that has been available in the market for a long time.
- Sending to the Wrong Address
You should remember that transactions broadcast on the blockchain network are final and irreversible. If you enter the wrong address then nothing can be done to change it.
- Lose Private Keys or Seed Phase
This is the worst thing you can do in crypto, with this you can lose all your funds. Your Private key is the holy grail to recovering your wallet. Hackers are also looking for them so don’t keep your private key online. To be extra safe, break the Seed Phase and store parts in different places.
Before you invest your money into any new project, do your research and think twice. Due to a lack of audits on projects and less regulatory involvement, scams in the crypto industry are also growing rapidly. Scammers are coming up with new ways to dupe people with every passing day.
Place of Crypto in one’s Portfolio
Everyone must have cryptocurrencies in their Portfolio because even with the market volatility, crypto can bring chunks of money if you trade them wisely. Even if crypto undergoes market volatility, it still follows the market sentiment and technical analysis as every other traded asset.
Considering you are a new entrant to crypto investment, you can start with 5% of your investment in crypto, and as you start to understand the market you can increase it as much as you like. There are some traders who are highly inventive in cryptocurrencies. For example, Micheal Saylor is highly invested in Bitcoin, in just one year he has purchased over 100,000 Bitcoin.
Cryptocurrency Market Volatility
The crypto market has always been volatile since its inception. However, after the covid crisis, not just blockchain enthusiasts, but even commoners are looking forward to entering this market. The rapid growth in blockchain technology and multiple developments over its use cases have increased the value of cryptocurrencies significantly. There are multiple factors responsible for volatility in the crypto market.
- Demand and Supply
Cryptocurrencies are not backed by any government or corporation, they are backed by the blockchain technology upon which they are built. Hence, the price of a cryptocurrency is simply based on demand and supply.
Most cryptocurrencies have limited supply and when they come into the trend or provide a proper use case, their demand increases.
It is simple enough to understand that “high demand” and “low supply” will eventually increase the value of a token or cryptocurrency. It also means that when the use case is over, supply increases and demand decreases, and consequently, the value also drops quickly.
- Lack of regulatory authority
Lack of regulatory authority is also a major reason behind the market volatility. Unlike any other asset classes that have some sort of regulatory authority governing them, cryptocurrencies are by their very nature not controlled by any entity in the traditional sense as fiat currency or equity or bonds are.
- The Sentiment Factor
With the growing popularity of crypto, more and more investors will start to understand the factors responsible for influencing the market. Till then, most of the movement is speculative in nature as investors are buying or selling purely based on sentiment.
Many young investors are entering the crypto market to earn quickly. However, when they lose a lot, they usually quit the market; which in turn, increases the market volatility.
Investing in cryptocurrency is safe, there are risks involved but aren’t there high risks in a traditional market too? As an investor, you should be competent enough to trade wisely. Cryptocurrencies also provide hedging instruments to you to lower your risks. Before you invest in anything you should do your own research.
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