489
views

Crypto Investment: Understanding Risk Your Tolerance

There has been a surge in crypto investments in recent years, with over 18.5 million bitcoins currently circulating. The extraordinary shift from traditional investments to digital asset investment is primarily attributed to cryptos’ numerous advantages, including security, anonymity, more comfortable cross-border transfers, and adaptability.

Cryptocurrency investment is one of the non-conventional forms of assets that will see increased adoption in the coming years. The uniqueness associated with these non-traditional forms of investments has resorted to numerous risks. Maneuvering through the treacherous waters requires a clear understanding of what you may be coming your way. This article aims to shed more light on a few types of problems you might encounter during your crypto investment and how to deal with them.

Risks of Digital Investment

Investing in cryptocurrency is a relatively new phenomenon that is associated with different risks, including:

Market Volatility

Changes in the manner in which a market operates usually affects all sectors of the economy. Since the inception of bitcoin, the primary Cryptocurrency, in 2009, the crypto market is experiencing drastic changes in its value every day.

The price per unit changes is simultaneous to the forces of demand and supply at play in the market. The non-existence of government control in the industry further catapults the differences in prices. These are the two primary factors that bring about drastic shifts in the value per unit of the digital coins over a short period; hence, resulting in massive profits or losses for their holders.

The higher level of market volatility existing in cryptocurrency makes it a riskier venture than its counterparts in traditional investment forms.

Lack of Recognition as a Legal Tender

Cryptocurrency is a digital currency meaning it cannot be held or owned wholly by a specific nation. Thus, no federal banks of a country in the world have put in place strategic policies governing its use, recognizing it as a legal tender or protecting its users.

The lack of recognition of cryptocurrency as a legal tender increases the risk of holding it as it can be rendered worthless at any moment. Thus, an investor cannot depend on it primarily as a secure source of investment.

Theft

Even though most of the cryptos readily available are under encryption, there has been a significant increase in cryptocurrency thefts via hacking. 

Advancement in technology has resulted in creating superior computers and software that enable hackers to gain unauthorized entry to crypto platforms, including exchanges. Over $ 1.7 billion worth of cryptocurrencies has been stolen from crypto exchanges in 2020 alone, confirming that crypto platforms are not entirely safe.  

An increase in the number of crypto-jacking taking place will negatively affect the specific cryptocurrency value once the information is made public. Thus, the negative changes in the amount of cryptocurrency make the entire investment risky.

Lack of Mainstream Adoption

A limited number of units is usually in circulation to maintain or appreciate a particular type of cryptocurrency value. Imposing such a limitation means that only the value of the digital currency can either appreciate or depreciate.

The limitation creates a form of restriction which will prevent the digital currency from gaining global recognition as a legal tender. Thus, investors can only hold a limited number of units of the cryptocurrencies.

Association with Illegal Activities

Digital currency is sometimes used as a form of payment to procure illegal substances or services. Services that may be procured include money laundering services or different account credentials. Most of these transactions usually take place on the dark web, thereby bringing disrepute to digital assets.

Such information may deter individuals with honest intent from purchasing the digital currency, thereby affecting the money’s overall value.

Techniques to Protect Cryptocurrency Investment

Before investing in cryptocurrency, one needs to adopt several precautions to protect themselves. Some of them include:

Conduct Extensive Research on Cryptocurrency

After successfully creating the bitcoin using the blockchain tech, many cryptos develop up to date using the same method. However, different cryptocurrencies have different values that depend on numerous factors. Before deciding on the type of crypto to invest in, an investor should conduct extensive research to get an in-depth understanding.

The data collected during the research will provide the guidelines on the most suitable coin to purchase. Some of the critical information which needs to be identified include the following: The price per unit changes over a specified period, the number of traded volumes of each cryptocurrency, and the currency’s level of popularity, whitepapers, etc. 

Invest in a Cold Wallet

Purchasing a cold wallet may be an expensive undertaking, as most hot wallets are usually free. However, cold wallets provide more protection as they allow cryptocurrency holders an opportunity to access their wallets offline.

The cold wallet is more secure as it does not require one to use the internet to access his/her wallet. This protects a cryptocurrency holder from crypto hackers who rely on the internet to steal credentials.

Change Passwords Regularly

Changing your password regularly will improve the security levels of your wallet from unauthorized individuals. Furthermore, it will provide enhanced security as the encryption codes will vary with each new passcode.

Use a Secure Internet Connection

When accessing your hot wallet or trading using public WiFi, it exposes your device’s information to numerous individuals. When using public WiFi or home WiFi without a VPN exposes your devices’ IP address. The IP address will make it easier for hackers to obtain all your personal information.

Have Multiple Wallets

Procuring multiple wallets will help to spread the risk of holding your assets instead of using one wallet. Different wallets will require you to provide other login information, which will be encrypted using different codes. Thus, if one wallet has been hacked, you will only lose the funds held in it instead of the entire amount invested. 

Closing Words

Like any other financial investment, the crypto investment carries significant risks. The main risks involved in crypto investments include technology risk, price volatility, theft, and changing regulations. The several risks involved in crypto investment calls for investors to exercise caution while conducting crypto investments. 

Bitcoin live price
Btc
Bitcoin
$30.431
price
1.62285%
price change
BUY NOW

Besides, inexperienced crypto investors should only invest amounts they are willing to lose.  Nonetheless, despite the risk involved in crypto investment, crypto investors can still reap the most benefit from the venture by incorporating the techniques identified above plus exercise patience. 

Stay up to date with our latest articles

More posts

How Can Crypto Trading Bots Help You Manage Your Investments?

Bots are computer programs designed to carry out specific activities automatically. They operate with the least amount of human input possible.  Crypto trading bots are automated programs that trade a single coin or a portfolio of cryptocurrencies. They trade on one or more exchanges on behalf of the owner or user.  Cryptocurrency bots can automate trading tactics to increase portfolio profits. Today, we'll take a closer look at this ever-expanding technology.  A Simple Way to See Crypto Trading Bots Artificial…

Can You Really Protect Your Crypto Investments Against Whales?

It is only natural that the price of BTC changes following whales' transactions. Because altcoins have smaller market capitalizations, this effect is even more pronounced on their prices. The ways whales manage to manipulate the market are inventive and can lead to heavy losses for small traders. In our guide, we look into the matter and reflect on how to protect a wallet against whales. Understanding the Concept of Whales The term "crypto whale" refers to a person or organization…

What Are Fractionalized NFTs?

Most people who use the internet regularly, whether for business or pleasure, are familiar with NFTs. Everyone in the crypto/blockchain community looks at these "Non-Fungible Tokens” with interest.  The only problem is that NFTs are becoming extremely popular and too costly to own.  In this context, Fractional NFTs, or F-NFTs, have entered the market to attract new investors. Imagine dividing a single NFT into smaller parts and making it available for purchase. This concept is the principle governing the growing…

Diluted Market Cap – A Beginners’ Guide

The value of a cryptocurrency is difficult to predict, especially if we are dealing with a new token. If you're looking to invest in cryptocurrency, measures like the fully diluted market cap can guide your choices.  The term "fully diluted market cap” will represent the core of today’s guide. We'll begin by defining the sector's market capitalization before moving on to more advanced notions. Market Cap in the Crypto Industry The total worth of an asset now in circulation corresponds…

Top Crypto Marketing Agencies to Promote Your Cryptocurrency Project in 2022

Nowadays, launching a crypto project can be a daunting task for most developers, especially considering the competition. This report claims that the industry amasses over 18,000 cryptocurrencies as of March 2022. Whether you focus on NFTs, DeFi, or any other crypto-related activity, you will have to face stiff competition. Fortunately, you can gain a competitive advantage over your peers with the help of crypto marketing agencies. These services cover all the promotional aspects your project needs to get into the…

The Difference Between Capped and Uncapped ICOs

Some ICOs decide to set a cap on how many coins investors can buy. However, some people choose to offer unlimited coins at the sale. Different teams can follow different strategies to obtain success in this growing market. Today, our guide aims to make a clear distinction between capped and uncapped ICOs. Understanding the Concept of ICOs An ICO (“Initial Coin Offering”) is a way to launch a new cryptocurrency. ICOs are a way to raise money for a project…

Is It Possible to Spot a Fake NFT?

Blockchain technology should have made life simpler for digital artists selling unique tokens of ownership to other people. A public ledger can give buyers a record of who owns a piece of art in perpetuity. Blockchain gave some artists a new chance to earn money. However, some artists admit that the last year's crypto boom has been a real mess.  Anyone can "mint" a digital asset as an NFT, even if they don't own it. How do you spot a…

Unstoppable Domains – A Beginner’s Guide

Unstoppable Domains are an intriguing and unique new option that is gaining traction in the crypto industry as more people become aware of them. Even though you may be inclined to dismiss them as simply another "crypto craze,” you may not want to be so hasty in your judgment. Whether you have your wallet or just learning about crypto, unstoppable domains have some unique advantages that you might consider utilizing for your website. This post will go over all you…

Understanding How Ripple’s Interledger Protocol Works

Payment networks are now fragmented and disjointed. Transferring money within a nation or between accounts on the same system or ledger is quite simple. The same goes for transferring money between accounts on a different network or ledger. In most cases, however, transmitting data from one ledger to another is unfeasible. Even in places where connections are available, they are often manual, sluggish, or costly. Ripple’s Interledger Protocol allows the routing of payments across multiple digital asset ledgers. Meanwhile, it protects both…

3 Meme Coins Still Riding the Meme Wave and Ready to Explode

With Elon Musk on the verge of buying Twitter, his pet crypto, Dogecoin, could rise to new heights of popularity and demand. However, DOGE is not the only meme coin ready to burst on the scene in 2022. Others are waiting for a signal to show the meme wave is not only alive and well but rising too. Meme coins started out as a joke. In a market dominated by raging bulls and bears shifting crypto prices by the thousands…