Investing in cryptocurrencies; encrypted digital money like monero can have its downsides and upsides just like the traditional currencies. However, the risks are higher with cryptocurrencies as it is still relatively new.
Many people have jumped on this online wagon with hopes of getting rich quickly without carefully considering the possible outcomes. Some are investing without the knowledge of what they are investing in, or with resources, they can’t afford to lose.
We will nevertheless break down a few risks associated with investing in cryptocurrency.
- Valuation
Unlike tradition investing where a company can be assessed and valued, cryptocurrencies can only be priced. There is no set metric to guide the flow as is in stock trading. This takes away investor confidence.
One can also lose all their investment within a day, as sometimes the fluctuations run to hundreds of percent in a few hours.
If a source code has a bug in it, you can also lose track of your balance. It is advisable to check for the best XMRwallet before trading.
- Hacking
Cryptocurrencies are susceptible to hacking. Being a technology-based currency, it has attracted a lot of criminal activity as geeks with immense mining knowledge can access your portfolio if your security features are weak. In this case, not even authorities can step in as crypto is not decentralized and is not monitored by central banks.
- Regulations
Regulatory bodies have required banks and other bodies trading cryptocurrencies to lay bare their transactions. Unlike monero, some cryptocurrencies do not have sufficient privacy measures and thus exposing their traders. The regulators can, therefore,pinpoint specific transactions to specific users. This eliminates the need to use cryptos to buy whatever, whenever they need to.
Other examples include local laws banning the trading of crypto, as experienced in China where Chinese investors suffered insurmountable losses.
- ICO (Initial Coin Offering)
Unlike Initial Public Offering (IPO), ICOs do not have a guarantee. The crypto issuers are held to no obligation by anybody to provide a track-record of their financial backing.
IPOs regulate how much one can invest, and how many shares can be allocated to an individual investor.
The developers can also decide to abandon the crypto after you have invested in it, with the high competition in the crypto market.
- Ownership
The coding in cryptos identifies the currency only. There is no feature that reflects who the owner is. This anonymity feature is an advantage to the security and privacy of the transactions, but a huge disadvantage to the current owner. If you lose your crypto, there is no assurance of ever getting it back.
Conclusion
The above does not mean that you should not invest in digital currencies. Various factors affect the growth and decline of cryptos just like any other financial medium. It is just but a heads-up for those looking to invest. You should, therefore, take your time to figure out which cryptocurrency to invest in. Notably, you should not use all your life savings or take up a loan for this kind of investment.
