Cryptocurrencies seem to be getting bigger and bigger each year. Many people still have their doubts about jumping on board with it, however.
To help you with that decision, we have compiled a summary of the risks and advantages to consider before trading with or investing into cryptocurrencies.
The risks of trading Crypto
Most risks concerning crypto are due to its volatility. Trading cryptocurrencies involves high risks and speculating, and it is important to be aware of that before trading!
- Volatility: unexpected changes in the market sentiment can lead to very sharp and sudden price fluctuations. A change in price of hundreds, if not thousands of dollars is not uncommon in the crypto market.
- No regulation: cryptocurrencies are unregulated by governments and central banks. As much as this can be an advantage, it also means that the currencies are mostly uninsured and intangible.
- Human Error: Human error (such as password amnesia) can lead to a total loss of crypto fortune.
- Hacking and Cyberattacks: Cryptocurrency exchanges can be susceptible to hacking and becoming targets of other criminal activity.
Advantages of trading Crypto
Of course, to all the risks involved with trading crypto, there are also many benefits.
- Volatility: Yes, you have just read about that in the potential risks of crypto trading. However, volatility is also one thing that makes the crypto market so exciting. Rapid price movements can present various opportunities for traders. It’s best to develop a risk-management strategy before diving in.
- Market Hours: Unlike the stock exchange, the crypto market is open 24 hours a day, seven days a week.
- Transaction Fees (or lack thereof): If you’ve looked at your bank statements and sighed at the level of fees for writing checks, transferring funds, etc; you’ll be happy to hear that with cryptocurrency you’ll usually be in the clear when it comes to transaction fees.
- International Trade: Cryptocurrencies are not subject to exchange fees, interest rates, transaction charges, or any other fees of that nature. Another plus is that, unlike traditional bank transactions, you can send and receive money all over the world within minutes, or sometimes even seconds.
- Confidentiality: Cryptocurrencies guard your identity throughout the whole transaction chain, protecting you against identity or account theft. Your financial history will not be exposed at any point of the process, either.
- Transactions: Cryptocurrency transactions have the great advantage of being one-to-one affairs, cutting out the middle man, so to speak. This leads to more clarity on what needs to be paid and more accountability between the two parties.
Should you start trading?
From the information gathered about cryptocurrency, you can see that, as with everything in life, it come with its pros and cons.
In this case, however, the pros seem to outweigh the cons by quite a bit.
To safely start trading, it will be important to take note of the risks and keep them in the back of your mind in order to prevent losing money over a simple mistake that could have been avoided.
When going about it in a responsible way, cryptocurrency can absolutely be a good choice of investment.
When you make sure to take the time to inform yourself about the markets, cryptocurrencies could be an exciting addition to your portfolio!