5 Undeniable Risks Involved In Cryptocurrency

Hello friends, welcome to another episode on crypto for Newbies. Last time, we debunked some myths associated with Cryptocurrency. In this episode, we will expose the risks associated with it. 

The truth is, risks connected with cryptocurrency vary depending on the people involved in the trading cycle. The main hazard to crypto investors is investment risk or the risk of losing the value of the digital currency itself. Because cryptocurrencies have no intrinsic value, their prices could plummet at any time.

Risks of investing in cryptocurrency 

1. Volatile market

If the value of cryptocurrencies falls dramatically, anyone with cryptocurrencies in their portfolio will definitely lose money. This is a standard investing risk, but the uniqueness of the blockchain and cryptocurrency makes assessing it more difficult than with traditional assets. 

2. The cryptocurrency market is hard to predict

Investment returns in cryptocurrency are difficult to predict. The most anyone can do is make an educated guess. So, evaluating the risk-reward balance is challenging. Past performance isn’t always a good predictor of future results. 

Learn more: What Are The Legal Risks To Cryptocurrency Investors? 

3. No legal backing

Ownership of cryptocurrencies is not enforceable in a court of law. So, an investor who has their cryptocurrency stolen or lost has no remedy. Similarly, if deals are executed on terms that differ from those agreed to, an investor usually has little legal recourse. 

4. Non-tax-deductible 

Cryptocurrencies’ tax status is subject to change and varies by country. There is a lack of effective rules and it is still unclear if cryptocurrency is money or a commodity. Income from cryptocurrency investments is not subject to tax because the reporting procedures are still obscure.

5. Transactions are based on trust

Furthermore, low-quality cryptocurrency data makes it more difficult to optimize investments. Much of the business on bitcoin exchanges, for example, is peer-to-peer. This means that transactions on the blockchain are not routed through a bank but individual traders. This could give rise to nefarious activities on the blockchain if one is not cautious. 

Bottom line 

Some of the risks listed above are common to other investments or businesses, so they are not new to you. Unusual ones, such as threats to the continued existence of cryptocurrencies, are less known. As usual, you should be aware of the hazards that arise from including cryptocurrency in your investment portfolio and devise creative ways to mitigate those risks.