Trading with cryptocurrencies has the potential to bring you untold wealth or it could lead to your financial ruin if you are not careful. Cryptocurrencies are viewed by many as a fantastic investment that provides direct exposure to the demand for these digital assets together with the business and projects that they facilitate. The blockchain technology that cryptocurrencies operate under has enhanced security measures that attempt to stop hackers from infiltrating the network. With that being said, trading in crypto assets does bring with it associated risks that you must be aware of.
Risks of Crypto Trading
Investors who trade in the crypto market must be aware of the risks posed. Such risks are not as common with traditional financial markets, like those for bonds and stocks, and this requires investors to be extra vigilant with their activities.
Hacking of Crypto Exchanges
Crypto exchanges are a convenient platform for investors to store their crypto. Although the most stringent security measures are employed, crypto exchanges are vulnerable to hackers and criminal activity. Such breaches have previously resulted in devastating losses for investors whose digital currency balances were wiped clean. Check out our list of best cryptocurrency exchanges and see where it’s safest for you to invest.
Crypto Fraud and Scams
There are increasing numbers of scams and fraudulent activities within the crypto industry. Devious methods are being deployed to lure unsuspecting investors. Some of the most popular ones include:
- Fake Crypto Exchanges;
- Ponzi Schemes;
- Fake Cryptocurrencies;
- Malware and Ransomware;
- Email scams; and
- Pump and Dump scams
These schemes can have devastating consequences for investors who are unfortunate enough to encounter them. When trading in crypto, you should always be alert to offers that sound too good to be true. For those investors who do fall prey to these schemes, the ramifications of the scam can have devastating consequences. When trading in crypto, you must always be alert to offers that sound too good to be true.
Cold Storage
Storing cryptocurrencies is not as straight forward as storing stocks or bonds. While storing your crypto on exchanges may be a convenient way for you to buy and sell your digital assets, you do run the risk of exposing your funds to theft and cyberattacks. In light of this, many investors choose to store their crypto in cold storage. Cold storage is an offline platform that includes hardware and paper wallets. When using cold storage for your crypto, you are given a private key to access your funds. While this method is quite safe, you will encounter problems if you lose your private keys as, without them, it would be impossible to access your funds.
Unpredictable Crypto Projects
You must be careful when choosing a crypto project to invest in as there is always the risk that it may not succeed. With competition being incredibly fierce, there are thousands of blockchain projects to entice you. As technology is still developing and needs time to be proven in real-world scenarios, your risk increases. Investing hastily in the wrong project could mean you losing your investment. Moreover, if crypto regulations in your country tighten then this could impact your investment negatively if associated taxes or charges are increased or if there is move to ban/block crypto trading.
Crypto Market Volatility
Since trading in cryptocurrencies is speculative, the risks are mostly related to their volatility. Cryptocurrencies have certainly experienced wild swings on the market with exponential gains and dramatic losses being a feature. The volatile nature of crypto prices can be attributed mainly to three sources i.e. sentiment, speculation and market manipulation.
Digital asset markets are anonymous and unregulated. This, combined with the vulnerability of cryptocurrencies and coupled with the rapidly changing sentiment of the public creates volatility in the crypto market unlike any other market. Crypto exchanges, investors with influence, and media owners have the power to manipulate prices. The most common manipulation strategies used are dark pool trading, pump and dumps, shilling, and wash trading.
It is recommended to start small and invest what you are prepared to lose, as a worst-case scenario. While returns can be quite profitable, losses can have a demoralising impact.
3 Tips on How to Trade Safely
While traditional investments are a risky proposition, investing in cryptocurrency takes the element of risk to another level. With that being said, digital currencies are some of the hottest commodities at the moment with BTC recently breaching $60,000. If you plan to invest in cryptocurrencies, the following tips may help you on your journey.
- Research Crypto Exchanges: Crypto exchanges are platforms that investors use to buy and sell digital currencies. Before diving in with your investment, it is a great idea to research crypto exchanges. There are over 500 crypto exchanges available, so it is important to choose wisely. Research each exchange, check out their reviews and speak to experienced investors before making your decision.
- Plan Where to Store Your Crypto: Once you buy cryptocurrency, you will need a secure location to store it. Most investors store their crypto on a crypto exchange or a crypto wallet. Each of the crypto exchanges offers different levels of security. Each crypto wallet has its requirements, benefits and security measures in place. Once again, do some research to make an informed decision.
- Diversify Your Investments: It is always a good idea to spread your investments as opposed to putting all your eggs in one basket. Diversification is vital to effective investment strategies, and investing in crypto is no different. There are a plethora of investment options on the market, so consider giving your investment portfolio some variety.
Wisly’s Secure Crypto Tracking
Our secure crytpo tracking app is an ideal place for investors to track metrics and data in the crypto market. With the Advanced Cryptocurrency Analytics feature, you can access detailed and actionable insights on your investments and crypto portfolios for free. This will include a detailed profit breakdown, Fx-impact analysis, and risk metrics.
Our extensive market coverage extends to over 11,000 cryptocurrencies and over 3,300 derivative contracts that are updated daily. It has an easy-to-use interface where you can track your spot and future investments through an innovative dashboard.
Additionally, this is an AI-powered platform that has an automated coin-tracking system that finds and normalises crypto assets from multiple sources. It also supports delisted coins together with their historical prices so that you can get a holistic view of your portfolio. It is available on Desktop and Mobile applications, both Android and iOS.
Final Thoughts on Trading Cryptocurrency
The blockchain industry and crypto market continue to strengthen at unprecedented levels. With financial infrastructure like institutional-grade custody services and futures markets currently being built, investors will have the most effective tools to manage and protect their digital assets. With many large companies committing sizable investments in the crypto market and an increasing number of companies showing a willingness to do so, the crypto industry has reached a stage where it appears that investing in crypto assets can be described as safe.
