Investing in cryptocurrencies and crypto projects can be a great way to make money, but there are also some risks that you need to be aware of. Fortunately, there are several important factors you can look into to help you avoid making bad investments.
Bitcoin’s annualized return has come with an annualized volatility of 81%
Despite its relative weakness as an investment, Bitcoin has enjoyed a very successful run. The price of the digital currency has surged more than 400% since April 2013. It has gained more than five times as much as the second-ranked asset class, the S&P 500. It has also achieved an annualized volatility rate of 81 percent. This is more than the volatility of many of the largest emerging market currencies.
A study by Compound Capital Advisors’ Charlie Bilello, in collaboration with YCharts, looked at the performance of various asset classes, including the asset class whose name rhymes with ‘bitcoin’. They found that it was a good idea to include the crypto-currency in one’s portfolio. In addition to providing robust infrastructure and secure operations, responsible trading venues can offer a competitive alternative to riskier products.
Technology risks
Investing in cryptocurrencies and crypto projects can be a lucrative proposition for the savvy investor. However, it can also be a risky endeavor. Unlike other investments, cryptocurrencies have little or no official insurance or regulatory protection. Moreover, they can be prone to fraud, market manipulation, and payment risks.
While digital assets such as cryptocurrencies and blockchain-based business models are here to stay, there are unique risks associated with them. These include technological, operational, and financial stability risks. Understanding these risks can help protect investors and broaden the adoption of cryptocurrencies.
A recent survey conducted by the New York Digital Investment Group found that nearly one-in-four respondents had invested in a digital asset. That’s about 46 million Americans, or about 14% of the population.
The market for Digital Assets is relatively new, and governments could impose more stringent regulation. This could discourage investors from buying Digital Assets.
Regulatory uncertainty
Regulatory uncertainty when investing in cryptocurrencies and crypto projects continues to be a major barrier to expanding crypto adoption, according to a report from private intelligence firm Stratfor. Amid the ongoing debate over the best way to regulate the digital assets, policymakers should work closely with the technology and business communities to develop a coherent policy approach.
As the market capitalization of cryptos grows, it may be indicative of the potential economic value of underlying technological innovations. In addition to the need for safeguards against fraud, payment, and lending risks, it’s important to make sure that cryptos are secure from systemic risks.
While there are currently several bills in the US Congress that have been proposed to address cryptos specifically, it is difficult for policymakers to know exactly how each legislation will impact the financial stability of the market. This is why it is important to create a well-defined standard for cryptocurrencies.
Rug pulls
Investing in crypto projects and cryptocurrencies has become a popular way to make money, but some projects are susceptible to rug pulls. Rug pulls are scams in which creators steal investor funds. The term “crowdfunding” originally spurred excitement among investors, but the hype has since given way to a bad reputation.
These projects often rely on smart contracts, which minimize human error and transaction costs. They also offer financial transparency reports and independent audits. These are important factors in determining the legitimacy of a crypto project.
A “pump and dump” scheme is a crypto scam in which an investor’s token is sold at an unrealistic price. This results in a massive drop in value that will never recover.
The Squid Game token was a high-profile example of a rug pull. The price of the SQUID token surged over 230,000 percent in a matter of weeks. The creators dumped the tokens when the price hit its peak. The developers claimed that they were riding on the popularity of the Netflix show “Squid Game.” They were able to collect an estimated US$3.4 million in investor funds.
