The digital money market can be dangerous especially for beginners and inexperienced investors. The cryptocurrency market provides many opportunities not only to increase capital, but also to lose it. There is no doubt that cryptocurrencies and digital tokens won’t get out of date, but the awareness of their possible crypto risks will help to save investor’s funds and conduct more successful business. We provide a list of key crypto risks to take into consideration while investing in cryptocurrencies.
- Price volatility. Volatility provides a measure of price uncertainty in markets. Volatility is measured by the day-to-day percentage difference in the crypto price. The degree of variation, not the level of prices, defines a volatile market. Taking into account that price is a function of supply and demand, volatility is a result of the underlying supply and demand characteristics of the crypto market. The price of digital assets is extremely volatile, it can rise and fall by tens of percent during the day. Experienced traders, in order not to lose coins on a sudden drop in the rate, use special orders. They are called ‘stop loss’. The user fills in such an application form indicating at what price the asset will be sold if it becomes cheaper.
- Investment case. Newcomers might be confused at the variety of digital assets as their number is over 5,500 cryptocurrencies. It is important to note that a great part of them does not take part in trading operations as they originally were created for raising funds for startups. Tokens issued by the project might lose value over time. Investing into the unknown cryptocurrency requires a deep search and analysis. Crypto world is famous for its fraudulent schemes and it is only investor’s responsibility and determination that save his funds from scammers. Some experts advise to create a case with several cryptocurrencies to avoid crypto risks.
- Leverage. Leverage is the use of debt (borrowed capital) in order to undertake an investment or project. Users multiply the potential returns from a project. However, it might cause great threats as leverage will also multiply the potential downside risk in case the investment does not work out. On the one hand, this is an opportunity to earn a lot. On the other, the risk of losing everything at once. Users should be very careful with this tool and not to apply it without sufficient knowledge.
- Cyber risks. Although in principle the Bitcoin blockchain has proven to be the most robust among cyber innovations, there is still a tendency of weak cyber standards by a number of digital assets. Not all cryptocurrencies are created equally secure, and smart bots are able to identify the last ones provoking potential danger for absent-minded users.
- Technological risks. One of the examples of technological limits of cryptocurrencies is the complexity of computing and power consumption of crypto mining. Not all crypto projects provide true blockchain features with its highest security and risk protection. Crypto enthusiasts have to be aware of the technological risks and false promises of decentralization made in many projects. Blockchain is not equal for all the participants.
- Forks. Crypto experts keep talking about the pros and cons of forks. The last one can influence the consensus on digital assets causing eroding market share, valuation and adoption. Crypto followers believe in the world governed by boundless trust and absence of centralized authorities. Nevertheless, in any case the lion’s part of crypto assets is in the hands of whales and these are the holders who actually determine the course of the market with its results, fluctuation and right for existence.