902 views

Crypto Investment: Understanding Risk Your Tolerance

There has been a surge in crypto investments in recent years, with over 19.2 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. However, the uniqueness associated with these non-traditional forms of investments has resorted to numerous risks. Maneuvering through treacherous waters requires a clear understanding of what may come 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 affect all sectors of the economy. Since the inception of bitcoin, the primary cryptocurrency, in 2009, the crypto market has been experiencing drastic changes in value daily.

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 digital coins over a short period, hence, resulting in massive profits or losses for their holders.

The higher market volatility 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 that 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 primarily on it as a secure investment source.

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 the creation of superior computers and software that enable hackers to gain unauthorized entry to crypto platforms, including exchanges. As a result, 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-jackings 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 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 digital currency, 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 the following:

Conduct Extensive Research on Cryptocurrency

After successfully creating the bitcoin using the blockchain tech, many cryptos have developed up to date using the same method. However, different cryptocurrencies have different values that depend on numerous factors. Therefore, 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 guidelines on the most suitable coin to purchase. Some critical information that needs to be identified includes 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

A cold wallet may be expensive, 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 their 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. In addition, using public WiFi or home WiFi without a VPN exposes your device’s 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. This is because 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. However, the main risks involved in crypto investments include technology risk, price volatility, theft, and changing regulations—the risks involved in crypto investment call for investors to exercise caution while conducting crypto investments. 

Bitcoin live price
Btc
Bitcoin
$23.403
price
0.20942%
price change
TRADE 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 abovementioned techniques, plus exercising patience. 

Stay up to date with our latest articles

More posts

Drivechain: The Bitcoin Upgrade to End All Altcoins?

Bitcoin, the world’s first cryptocurrency, regularly faces criticism for having ‘outdated’ tech and a tendency to evolve slowly, relative to the rest of crypto. This leaves altcoin projects looking to build on Satoshi’s original invention room to differentiate and compete through added features, such as faster throughput, smart contracts, and tokenization.  However, a hotly-debated Bitcoin upgrade called “Drivechain” seeks to introduce these benefits to Bitcoin by opening up its development possibilities in one fell swoop. What is Drivechain, what are…

How the Address Poisoning Crypto Scam Could Affect You

“Address Poisoning” is a new cryptocurrency scam that deceives users into transferring funds to other wallets instead of the intended recipient. While it’s not the most aggressive cryptocurrency scam, Address Poisoning still tricks many into funding crypto fraudsters. Fortunately, it is easy to detect and avoid even by the least tech-savvy users. What is Address Poisoning? Crypto users should be familiar with the wallet’s transaction list, which contains all the “Send” and “Receive” transfers. This list provides details on the token…

Centralized vs. Decentralized Bitcoin and Crypto Mixers

Many people see cryptocurrencies as a way to keep transactions anonymous and private. However, recent reports suggest that most crypto transactions happen on centralized exchanges, leaving user data vulnerable to theft and fraud. The popularity of crypto mixers has been steadily growing as a way to combat this problem. A crypto mixer is an online service that helps mix funds from different crypto wallets and exchanges.  This strategy makes it difficult for anyone to trace the transaction back to the…

Play-to-Earn (P2E) Games – What Are They and How Do They Work?

When it comes to Play-to-Earn (P2E) games, there is a lot of confusion about their concept and how they work.  Behind the Huge Play-to-Earn Success: What's the Idea? Play-to-Earn games are a new way of playing games that have recently gained traction in the gaming world. The basic idea behind them is simple: you can play the game and make money. The concept works by allowing players to earn real money or cryptocurrency rewards for completing certain tasks within the…

Metaverse Games to Keep an Eye on in 2023

, The gaming industry has recently witnessed a surge in demand for metaverse games. These virtual worlds offer gamers an immersive experience and unique gameplay opportunities. With more developers investing in this burgeoning sector, 2023 looks set to be a momentous year for these innovative titles. This article will look at some of the most anticipated metaverse games of the year and briefly overview each title. How are Metaverse Games Different? Metaverse games are virtual worlds that exist as persistent…

What Are Front-Run Orders in Crypto?

Front-run orders are an issue that can have serious consequences for investors. This article will explore what they are, why they're a problem, and some methods to identify them. We'll see how to minimize the risk of being victims of front-run orders and how exchanges can reduce their occurrence. Let's dive into the world of front-run orders and learn how to make crypto trading safer. What Are Crypto Front-Run Orders? Front-run orders are when traders take advantage of an upcoming…

3 Ways DeFi Can Recover After Alameda and FTX Bankruptcy Shock

In early November, Alameda Research became insolvent. FTX tried to bail it out but faced a liquidity crisis that shortly led to its bankruptcy and marked the start of a cataclysmic meltdown in the cryptocurrency market. Here’s a brief aftermath of it in numbers: $223 billion was lost in the market cap for the entire crypto market in less than 5 hours. $15 billion was lost in total value locked (TVL) in DeFi protocols. $4,700 drop in value for Bitcoin in a…

SuperBots – A Case for Imminent Decentralization amid Recent CEX Failures

Crypto trading has taken the back seat in the digital economy in 2022, with the market remaining under the bears' control for most of the year. Furthermore, traders have seen their faith rocked by the consecutive failures of centralized exchanges. These intermediary marketplaces have been the powerhouse of the industry since its humble beginnings. Now, they seem to crumble under mounting allegations of scams, lawsuits, and solvency concerns. Meanwhile, they make a convincing case for the imminent decentralization of crypto…

Smart Contract Security – Pitfalls and Solutions

Smart contracts are becoming increasingly prevalent as the world moves towards a more digital and automated future. Still, they are far from being the panacea of all technological ills. Smart contracts are self-executing contracts with a predetermined set of rules. They are stored on the blockchain and run by computers, which makes them tamper-proof and reliable. However, as with any new technology, smart contracts have associated risks. This article will explore some of the most common pitfalls and how to…

Looking for Crypto Marketing? Here are The Best Crypto Advertising Agencies in 2023

It is vital to have a strong marketing strategy if you wish to succeed in cryptocurrency. This is where crypto marketing agencies come in. You may successfully promote your project and reach your target audience through a crypto marketing agency.  This article will explore the top crypto marketing agencies in 2023. Moreover, we will look at their services and how to choose the right one for your project.  We will also discuss the benefits of using a crypto marketing agency.…