The investments in the cryptocurrency market are increasing day by day. New investors are making their entry into the market. Existing investors are reaping higher profits as well. Globally, crypto investments hold a market capitalization of $1.96T. There will be an increase in the market cap in the coming years. India and USA rank top in investment. While Bitcoin was the first to enter the market of cryptocurrency. Today there are many other players in the market. Ethereum, Shiba Inu, Polkadot, and the Chinese e-Yuan are a few other players. They provide their investors with profits and easy returns.
With an increase in cryptocurrencies, there is also demand for crypto exchanges. These exchanges work as an effective medium. It helps investors choose the right coin or token to invest in. Most of these exchanges also provide a futuristic view of how the investment may shape up. These exchanges enable investors to make the right investment decision.
While the benefits are many, there is an important factor to acknowledge. Crypto market and investments carry their share of risks and challenges. Understand these risks before you decide to tread on the crypto investment model.
Let us now understand the risks involved in crypto investments:
Investments are unregulated: Cryptocurrency transactions are not backed by any financial institutions. There are no central banks involved. Regulatory authorities do not track financial transactions in the crypto market. In the case of traditional transactions, there is a central bank, regulatory authority involved. These authorities take care of scams or financial losses. This protects the interest of investors. The crypto world operates. Hence, in case of any loss or theft of your crypto assets then there is no central agency to support remediation. Regulators may also consider implementing rights involved in buying, holding, and trading cryptocurrencies.
Hacking and scamming: Talk to any crypto investor, you could hear stories about hacking and scamming. This is yet another added risk. There is a huge volume of misinformation about cryptocurrencies on the web. Phishing emails promising lucrative returns is a common scam in this industry. Investors who are new and do not wish to spend time and energy fall prey to such scams.
Crypto investment is new: Yes, this is true. The world of cryptocurrency and investments is a new concept to many. Most investors in the market today are naïve. There is no complete and thorough knowledge about this investment model. Your investment will increase if you stay patient. Understand the volatile market completely. Ensure that you start investing only after you have a complete understanding. Learning the market and its changing conditions can help you reap benefits in the long run.
Unstable market conditions: This concept has never changed. The common factor about the crypto investment market is its volatility. The market fluctuates day in and out due to unforeseen conditions. The market price of crypto may increase for a tweet made by a celebrity. Bitcoin reached an all-time high when Tesla approved it as a legal payment model. China has closed and banned bitcoin mining. This action also created a ripple effect on the crypto market with a sudden crash.
Forgetting the private key: This is a common risk seen amongst many investors. Usually, investors store cryptocurrencies in a digital wallet. This digital wallet is then secured using a private key. Most exchanges tell you to create a strong private key. This private key must be a combination of alphanumeric characters. But the risk here is that investors tend to forget their private key or even lose it. Once you lose your private is key or reach another hand, then your investments evaporate. There is no higher risk than third-party gaining access to your private key and in turn investments.
Taxation risks: This is yet another risk faced by almost all crypto investors. Globally, there is no law regulating taxation policy on crypto investment. Certain countries consider cryptos as an asset. While other countries consider the same as currency. There is always a sales or value-added tax imposed on these digital currencies. The tax factor attracts either during the buy or sale of digital currency. Depending on the jurisdiction, every investor is liable to pay applicable taxes.
