Cryptocurrencies are highly popular at the moment. They have gained much attention from entrepreneurs, celebrities and the public. However, at the same time, they also gained the attention of scammers. Since the technology is rather new and not much is actually known about it, every single cryptocurrency investment should be carefully analyzed.
To make everything easier for interested investors, here are some of the main risks that to expect when making a cryptocurrency investment. Consider them every single time.
Figuring Out How Much Cryptocurrency Is Worth Is Difficult
It is easy to go online, visiting websites like Cryptoext and quickly see the current value of a specific cryptocurrency. However, within a few days or even hours, it might be a wildly different value. This makes it really tough to figure out exactly the worth of an investment.
Cash-generating assets, such as stocks and businesses, can be easily analyzed. There are a number of formulas to use and metrics such as cash flow, growth or profits will help a lot. As opposed to the companies that do generate cash, cryptocurrencies have to be valued in a totally different way. Traders can just price and basically trade them, similarly to other currencies used around the world. Since they are not mature or even stable, trading confidence cannot be very high, no matter how good it appears a specific investment is.
It Is Hard To Trade Cryptocurrencies
It is quite difficult to sell anything that can end up losing 40% of its value in just 24 hours. In the cryptocurrency markets there is a lot of activity that ramps up transaction times. During December 2017, the average transaction time was actually 78 minutes. In 78 minutes the real value of the coins can change a lot.
The SEC stated that they see digital currencies as not being liquid enough. Because of this, they cannot be added to licensed funds. Also, the technology needed to trade cryptocurrencies is often not understood and investors rely on third party platforms that automatically include extra fees.
It Is Easy To Lose Cryptocurrency
One of the huge problems to deal with is figuring out how to actually store the cryptocurrency after it is bought. For instance, James Howells, a UK resident, claims to have had millions of dollars in BTC value stored on a hard disk that was unfortunately lost. In contrast, when buying stocks, a custodian is in place. That custodian holds stocks and verifies all transactions. Buying stocks is easy and they cannot be easily lost.
To protect cryptocurrency investments, traders often rely on a third party. Anyone can invest in the technology needed to do this, but if something bad happens, the investment may be lost forever.
Final Thoughts
Cryptocurrency investments are often seen as wonderful opportunities that can give great profits. However, any serious investor needs to also think about the associated risks. Traders who understand the risks and can afford to lose everything may think the risk is worth it can take on cryptocurrency investments. Anyone who is not prepared to lose everything should invest in something else.
