(Newswire.net — February 8, 2022) — The onset of technology in finance has seen a new high in the past few years. Today people are willing to trade in stock, share, cryptocurrency, and everything that could add to their earnings. Recently the trend of investing in cryptocurrency has become a new favorite to people. But everyone has the same question in mind, “is it safe to invest in cryptocurrency”?
Cryptocurrency overview
A cryptocurrency, “crypto” in short, is a digital currency. This includes currencies like Bitcoin, Ethereum, Litecoin, Ripple, and more. The cryptocurrency transactions are secured and stored over a ledger called “Blockchain”. The transactions are stored in parts or as a whole on software programs of all the users. The best thing about such transactions is everything is recorded. These transactions are reflected publicly in a “block” called Blockchain.
Risk factors
Trading cryptocurrencies do involve risks like any other medium of trading. But technical skills and basic knowledge about the market can lower the risk of investment. The risks of investing in cryptocurrency depend upon a number of factors. Having a basic knowledge of these factors can help lower the risk. To get the info, let’s explore in detail.
Malicious activities
There have been events of malicious activities on trading platforms. It is possible that a trading platform may become vulnerable to hacking. However, the chances of vulnerabilities in a blockchain are close to none. But in certain instances, the mining network may have an increased risk of hacking.
Risk related to currency conversion
Investors’ ability to convert a currency can be risky sometimes. This could happen due to policies related to the withdrawal or deposit of fiat currency. When policies are altered, there is a direct impact on the pricing and trading volume.
Peer-to-peer payment transaction risk
Peer-to-peer payment transactions happen between different parties in an event of currency trading. Many marketplaces have registered incidents wherein counterparties are brought without being regulated. In such events, there is a higher chance of risk that may occur between parties that are directly involved. That is one of the reasons why you shouldn’t invest in cryptocurrency.
Price manipulation
Trading in cryptocurrency and making secure gains seldom go parallel for investors. Volatility swing in such currencies is the reason why many investors may not gain confidence with such trading. There are various reasons for such volatility in the crypto market. The prime ones are speculation, market manipulation, and sentiment. The unregulated nature of crypto also plays a part in price manipulation.
Exchanges and trading platform risk
Many people are still not clear on what are the risks associated with cryptocurrency. They also lack the required transparency on the risks associated with operations related to trading. The Crypto market offers limited transparency and is unregulated too in many regards. However, people don’t really need an exchange or a trading platform for crypto mining. These platforms are used generally for the purpose of converting fiat currency to crypto or to trade one currency (crypto) to another.
Lacking regulatory framework
Lacking regulation paves the way for uncertainty. That is why events of price manipulation and volatility occur in the crypto market. Additionally, there is also a possibility of restriction that could occur in the future regarding the trading rules. This could significantly impact the cryptocurrency market and further the price of currencies.
Know your consumer rights
Due to events of hacking and potential security threats, storing cryptocurrency can be risky. The worst comes in the fact that stolen or lost assets cannot be recovered. However, there have been regulations for investors in the form of a custody solution that is basically the ability of any financial institution to keep cryptocurrency on behalf of their clients.
Conclusion
The risks of investing in cryptocurrency are real as they are for any other form of trading. But the profit margin is the reason why you should consider and start trading in crypto. Because the ledger registers all the events happening over the network, there is the least possibility of insecure transactions.