Crypto asset investors are particularly vulnerable to the risk associated with investing in virtual currencies. Bitcoin and other leading digital currency currencies (like Ethereum) have experienced significant price volatility over the past three months.
Many investors have turned to alternative coins like Bitcoin Cash and Litecoin as an investment alternative. While these digital currencies have their own unique risks, they are not immune to the same problems that plague Bitcoin and other leading virtual currency assets.
The best way to understand the risk of trading crypto is to take a step back and analyze the entire cryptocurrency market from a risk perspective. The following list of questions will help you decide if cryptocurrency trading is right for you:
What is the risk associated with investing in cryptocurrency?
While there are risks inherent to all forms of investing, cryptocurrency investing is particularly high risk due to the nature of the asset and the way it’s distributed. The inherent volatility of cryptocurrencies can lead to substantial losses if you aren’t careful.
And the lack of regulation in the market, as well as the risk of losing your investments if you don’t follow best practices, put cryptocurrency investors at an especially high risk.
Volatility in the Crypto Market
The volatility of the cryptocurrency market is a result of both the innovation of the technology and the lack of regulation in the market. When a new and groundbreaking technology is created, there’s a chance that it could be disruptive to the existing market models.
But that doesn’t mean that the entire market will quickly adopt the new technology. Staying behind the curve can cost investors a lot of money. Cryptocurrency volatility is caused by several factors, including forks in the blockchain, algorithmic trading, and extreme price movements that can be caused by social or economic events.
Scams & Fraud
It’s important to analyze the source of any investment advice you receive, including online. Some of the most common red flags to look out for include:
– No investment advice: If you’re getting advice on a new investment strategy that you haven’t heard of, or haven’t personally tested out, it’s a good sign that you could be targets of fraud.
– Lack of investment experience: Anyone can make bad investment advice. If you’re getting advice that’s more advanced in the investment field, you could be in luck.
– Shady investors: There are plenty of examples of fraudulent investment schemes where the scammers use legitimate investment firms to scam investors.
Are there other ways to invest in cryptocurrency?
There are a number of other ways to invest in cryptocurrency besides buying it directly from the creator. You could try trading cryptocurrencies with other cryptocurrencies, or find a broker that offers trading options like Forex.
Final Word: Should you trade crypto?
While investing in cryptocurrencies is a high-risk strategy, there are some coins that have proven to be more volatile than others. If you’re willing to take that risk, then investing in coins that tend to experience higher levels of volatility, like Bitcoin, is a great idea.
But remember, investing in smaller cryptocurrency coins isn’t risk-free either. One of the most common scams in altcoin investing is buying low and selling high, which can lead to big losses if you’re not careful.
Do your research, buy low and sell high. That’s the only way to make money in this business. Stay focused on what you want to achieve and don’t get bogged down with what you don’t have control over.