7 Major Risks That Come with Crypto Trading and How to Avoid Them

Decentralization is the defining feature of Cryptocurrencies.

13:11 25 January 2021

This feature immune it from any government influences. While you are dealing with Cryptocurrencies, it is important to understand how it works or which technology it supports.

 

Blockchain is the technology behind Cryptocurrency’s decentralized nature. The popularity of Cryptocurrency is constantly growing as completed blocks are added in chronological order.

 

With chronological bookkeeping, it allows the trader and investors to keep track of all the investment and Cryptocurrency transactions made in the Crypto industry. For more information you can click here.

 

Beware of These Major Crypto Risks That Comes with Crypto Trading

 

We all know that Cryptocurrencies are enjoying the peak of their life. The price of Bitcoin crossed the $40K mark, reaching its all-time best. However, amidst all the positive aspects of Cryptocurrencies, we are reminded to forget the risks associated with them.

 

Understanding the underlying risks of other Crypto trading industries will help you make more same and profitable decisions.

 

What are the risks we are talking about? Let's find out.

 

1. Wide Entrance and Narrow Exist

 

The popularity of Cryptocurrencies is indeed growing and reaching third world nations. This has created a wide entry market for Cryptocurrencies. However, it has limited exit points. The regulation of Cryptocurrencies is still limited, limiting the use of Cryptocurrencies; this makes the market have narrow exits.

 

The exit can be barred with technological limitations, currency convertibility, and few trading platforms. While the asset class of Cryptocurrencies is growing in the digital world, we are still waiting for broader exit points.

 

2. Intangible

 

Perhaps the miracle Bitcoin has brought with itself is that double-counting has been resolved without any third parties’ involvement. The notion of digital singularity captures this feature of Cryptocurrency.

 

However, the very nature of intangibility and illiquid restricts Cryptocurrency from smoother convertibility and insurability. For instance, there are no deposit insurance floors for the Crypto asset class in the case of Cryptocurrency.

 

3. Mark to Market

 

You have surely seen how institutions welcome you with open hands when you show your intention to enter the Crypto trading industry. You will, in fact, get several offers, discounts, and securities. However, when you feel like exiting the market, there are many things that pressure you to lower the prices you get. This shows just how illiquid the market is.

 

These types of issues are getting stacked up by new investors. As new investors join the network, the network is growing, giving a sense of satisfaction that you will have a wilder existence. Well, that is only a mirage. The exits are still narrow.

 

4. Extortion & Manipulations

 

When you enter the Cryptocurrency trade market, enter with an amount you are willing to lose. However, that doesn’t mean that you become a victim of social engineering and misinformation risks.

 

The impact of these cyber extortions has become so dangerous that the US Securities and Exchange Commission has come with fake ICOs investment websites to make people understand how to handle these kinds of situations.

 

5. Cyber Risks

 

With technological advancement, cyber-attacks have also advanced to a new level. Seeing how fraudulent activists are using technology to get hold of traders' and investors' information, maintaining cyber hygiene has become very important.

 

Although Blockchain technology has been resilient to fight cyberattacks, it has been seen that hackers hijack the trading website with lax security protocols.

 

6. Human Error

 

Forgetting the password of a Bitcoin wallet or access to your trading platform is one of the most common ways to lose all your Crypto assets. Hence, it becomes very important that you store all your Crypto related information safely.

 

7. Technological Risk

 

There have been many complaints about the computation complexity and the power consumption at the mining process. This shows that there are some limitations when it comes down to creating new Cryptocurrencies. Yet, not all Cryptocurrencies are riding the same rail, but it is better to consider this aspect as well.

 

Take Away

 

While there are many advantages that come with Cryptocurrencies, there are also major risks associated with Cryptocurrencies. If you are hoping to enter the Crypto trading industry, it is important that you jot down the risk that you might have to face down the line.