Cryptocurrencies are spreading like wildfire. The launch of Bitcoin in 2009 has encouraged the creation of a crypto space, which has undergone many ups and downs. Cryptocurrencies are extremely volatile. Investors are taking a huge risk by investing in cryptocurrencies. However, if they know to manage this risk wisely, they can find great opportunities from this digital asset.
Is crypto investment safe?
While some investors have made big gains through cryptocurrencies, others have suffered losses. Many experts suggest new investors avoid cryptocurrencies. But experienced investors who are experts in handling risks can include them in their portfolios. You may also try to include cryptocurrencies as 5-10% of your portfolio. In terms of market cap, Ethereum and Bitcoin are the largest cryptocurrencies. Both of them are most established when compared to the other cryptocurrencies. So they can be safer options to consider as crypto investments.
What are the risks involved in crypto investments?
Crypto investments include a lot of risks. Some of them are
Hacking has become common in the crypto space. 2021 has witnessed the loss of a huge amount of money. Some crypto exchanges have started providing private insurance. Still, you may not get back your investment if a scam or hacking happens.
Frauds are abundant in the crypto market as it is an unregulated industry. Many investors have fallen prey to these frauds and lost their money.
- Government regulations
Many governments across the world are still not welcoming to cryptocurrencies. Therefore, the rules and regulations regarding cryptocurrencies are not strong yet. Thus, using and trading cryptocurrencies are difficult in many countries. In that case, financial and legal risks are unavoidable. Some governments even consider cryptocurrencies to be illegal.
- Loss of capital
Investors must understand the particular financial environment and the chances of big losses in the crypto space. Even though there is a risk factor in every investment, the volatile nature of cryptocurrencies increases the chances of loss.
Is cryptocurrency widely adopted?
Initially, Bitcoin was launched as digital money rather than an investment asset. However, it didn’t become as practical as expected as there are still limitations to using it for purchasing most goods and services. More than 22000 cryptocurrencies are available in the market currently. However, only a few of them can be used for buying goods and services. Even though there are companies that accept cryptocurrencies, there is no rise in the number currently. Still, some financial experts predict changes in the future.
Can crypto become a new currency globally?
Cryptocurrencies are still an exciting investment asset. But it is unpredictable if it can become a new currency globally. A global currency is considered to be extremely deep and liquid like the US dollar. Many governments are still not completely satisfied with cryptocurrencies, making it difficult to achieve the standard of a global currency. Money is a well-controlled and regulated asset. The existing incarnation of cryptocurrencies can seriously affect the finances of individuals. So most governments will not accept a huge risk to their financial systems. So, such a change will not happen anytime soon.