Random Blog on Crypto (Part 37) : Some Risks of Cryptocurrency Investments

Cryptocurrencies can be used as an excellent alternative to investment, which I discussed again in a previous post. The features of this investment will make anyone interested in investing in cryptocurrency as its diverse and other features make it one of the most important investment alternatives. As the returns here are very high, it is an excellent investment opportunity for investors and is very important for portfolio diversification. Moreover, business, and various innovative ideas are created here because blockchain technology is behind it. But it should not be wise to invest in it without knowing its risks. Let’s talk about some risks today.

Volatility of Price:

One of the most talked about and discussed disadvantages of the crypto market is the volatility of the market price. The crypto market fluctuates so much that a lot can change in an instant. If this change is positive, then it is very good for any investor as very high returns can be earned from here in a very short period. But at the same time, it is a big risk factor for them. Since the price of crypto changes very frequently, it has the potential for investors to lose. Anyone can lose their investment capital overnight and become bankrupt. That's why this is the most important risk factor in crypto investment. The market's unpredictability can be particularly challenging for risk-averse investors.

Regulatory Problem:

Cryptocurrency regulations vary widely across countries and the change is rapid as well. Regulatory crackdowns or legal challenges can impact the value and legality of certain cryptocurrencies. This will lead to loss of investment.

Lack of Fundamental Value:

Cryptocurrencies are not like normal currencies. While normal currency is issued, it is backed by gold or some other standard, but in case of cryptocurrency, physical backup does not exist. This is why all cryptocurrencies are just numbers and have no intrinsic value. They are worthless if the entire market collapses completely. Basically, the value of real currency is based on its usage. And so, it will only increase in value when it can create more demand as a medium of exchange. Currencies that are based on gold or other assets do not have this problem because the assets held against these currencies have some intrinsic value and utility. But since cryptocurrency does not have any intrinsic value or utility directly with any physical asset, the amount of risk in this case is much higher. Their prices are driven by market sentiment, adoption trends, and speculative behavior. So, they are challenging themselves to assess their fundamental worth.

Liquidity:

The relatively new and fragmented nature of the cryptocurrency market can create an issue of liquidity. This it is challenging to execute large trades without significantly impacting prices.

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