Cryptocurrency has grown in recent years. Its growth has been quite rapid that it is almost everywhere you turn to on the internet’s financial streets today.
It’s even often tagged, “the future of money”.
But, in spite of its growth, cryptocurrency is not without onlookers and bystanders. People who stand behind the railings and question the rationality and technology upon which it is built.
The truth is there’s profit to be made trading cryptocurrency. But like any other financial asset, it has its inherent risks too.
Understanding the risks involved in trading cryptocurrency and how to avoid them would increase your chances of success as a cryptocurrency trader. This is why we have taken some time to explain some of the risks that are present in trading cryptocurrency and how you can avoid them as a trader.
Cryptocurrency Trading Risks and How to Avoid Them
Volatility
Knowing that the price of an asset you invest in could skyrocket in a tiny bit of time is enough to put anyone on cloud nine.
But, it also has the potential to keep you up, eyes wide open late at night with your heart pounding fast and cold sweat streaming down your face, if you think of how the price could take a downward plunge within that short space of time too. Some people can’t deal with this second part so they’d rather stay ‘safe’ away.
Experienced cryptocurrency traders understand that the market could be bullish (when prices are high) at one time and be bearish (when prices are low) at another. So, they only invest money that they can afford to lose not something like their rent. After all, every real investment is a risk. They also refuse to yield to FOMO (the fear of missing out). Instead, they take some time to analyse the market and carry out their own research before diving into any digital currency.
If these experienced traders have managed to stay above sea level for so long in this vastly volatile terrain, we believe we could all do with learning a thing or two from them.
Security
Anonymity is a cool advantage in the crypto space except when it’s not so cool.
People who carry out transactions with cryptocurrency can do so without revealing their identity which is great on many levels. But, anonymity makes it difficult to trace a user on the blockchain network in cases of theft. This is why it’s important that you pay a lot of attention to security.
Only use exchanges that have secure platforms and can be trusted to keep your digital assets safe. In addition to this, ensure that you do not reveal your private key or log in details to anyone. It is also advisable that you enable 2FA on your account so that if there is ever a situation where your private keys are compromised, a scammer would still be unable to gain access to your funds.
When performing transactions with a peer-to-peer exchange like Remitano, ensure that you pay extra attention to your interactions and transactions because you are dealing directly with individuals even though you are doing so through an escrow.
A Decentralized Currency
Fiat currency like the dollar is given its value and backed by a centralized body known as the government. On the other hand, Cryptocurrency is a decentralized system that is backed by no government which makes it less susceptible to certain external influences like centralized manipulation and getting devalued.
Thus, you can rest assured that the decentralization quality is not a risk after all. If anything, it is a more sophisticated system that ensures better accountability.
You can read all about how decentralization works on blockchain here.
The Number of Existing Cryptocurrencies
There are several cryptocurrencies out there; over 2,176 types at the time of this post. And, like the popular saying, more options only make you confounded. When placed with an option of which altcoin to invest in, some people can’t seem to make a choice. Then, there’s also the problem of fake digital currencies masked as real ones.
How do you avoid fake coins? How do you also ensure that you invest in the right cryptocurrency?
First, you have to understand that shady coins can’t hide so much. If you are considering investing in any digital currency that is not Bitcoin, ensure that it is listed on popular exchanges. Any cryptocurrency listed on reputable exchanges is one you can bank on. You could also take things a step further by researching the coin and ticking a few other important boxes.
In summary, cryptocurrency cannot be directly termed risky. It is an investment channel like stocks and forex. It is even more stable when compared to some of them. Just ensure to do your research and arm yourself with necessary information before investing. This way, you can protect yourself from fraud and ICOs posing as cryptocurrency and consequently make some returns as a smart investor.
