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Cryptocurrency is becoming mainstream. More people invest in digital coins for various reasons. Some users even buy cryptocurrency to secure their funds from inflation if their national currencies are experiencing a crisis. However, investing in crypto means risking never seeing your funds again.
Before you learn how to start investing in cryptocurrency, learn about some of the most common risks regarding cryptos. Check out the article to view risks and assets that are considered relatively safe.
The Risks Involved in Crypto Investments
Almost all countries, governments, and financial agencies have cautioned crypto investors about the hazards of purchasing cryptocurrencies. The warnings have been so loud and experts so vocal because of the euphoria surrounding digital currencies. And as we all know, excitement is not the best tool for investments.
When an investment makes news for skyrocketing returns, is featured in ads, or is advocated by celebrities to get filthy rich, investors may rush in without considering the risks. Moreover, they don't always check out and analyze the project, its flaws, potential, etc. They rely on someone claiming that "this crypto is the next best thing after sliced bread."
However, cautious investors keep in mind the risks. Here are some of the most common risks related to investing in cryptocurrency:
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Scams. Customers reported roughly $1 million in bitcoin scams per month in 2021. Since then, the number of scams has been increasing. One of the most popular scams is when websites imitate real platforms. For instance, a user sees a popular crypto exchange and doesn't check if it's a real website. Such sites often don't have SSL certificates, so your data is stolen by scammers.
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Volatility. Cryptocurrency is backed solely by demand and supply. Thus, the crypto market tends to fluctuate depending on crypto holders' behavior. You can invest in crypto at one cost and wake up the next day in the morning to see it drop in value twice, three times, or more.
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Exaggerated claims of significant profits. Cryptocurrency companies may also overstate how much money investors can make by investing in their tokens.
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No compensation whatsoever. While people investing in traditional assets may expect compensation (even though not to the fullest extent), this is not the case with cryptocurrencies.
Note: despite these rather critical risks, it doesn't mean you should abandon all your goals. Knowing these risks makes life safer since you can plan your budget and goals properly.
Is Crypto Good to Make Profit?
Imagine having invested in Bitcoin in 2010 when it was sold at $0.40 per BTC? If you bought 10 BTC back then, you would have $231,319 today! So, it seems that investing in cryptocurrency brings great profits, right? Yes, and no.
Bitcoin's value skyrocketed through 2021, hitting a peak of $69,000 in November. However, the price of Bitcoin declined in 2022 as part of a larger cryptocurrency sell-off as investors avoided riskier assets in the face of rising inflation and interest rates.
Still, Bitcoin is a costly and valuable asset, but you can tell that its value fluctuates a lot. Moreover, Bitcoin is one of the most popular cryptocurrencies, yet it has lost its value. Now, imagine what happens with other coins.
Overall, cryptocurrency can generate huge revenues if you invest in the right asset at the right time. But experts recommend investing only when you're 100% positive that the coin has the potential to grow. The coin's value can increase if the blockchain announces some positive alterations. For example, it switches from PoW to PoS as it's more sustainable. Or the project's developers fix issues or add changes that positively affect the speed of transactions.
Cryptocurrencies To Invest In
Most conventional investment assets did not fare well in 2022. Stocks and bonds fell in value, resulting in the worst year on record for the conservative "60/40" stock-bond portfolio since 2008.
Thus, many investors try to diversify their portfolios by adding cryptocurrencies. However, it's hard to choose a reliable crypto asset when you have zero to little experience buying crypto.
You can check the list of the following cryptocurrencies:
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BTC (Bitcoin). Even though BTC's price fluctuates, this investment is one of the best in the long run.
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AVAX (Avalanche). The Avalanche's subnets feature enables users to install mini-blockchains on top of the network. More companies should be able to afford to build their blockchain projects, making Avalanche and its token widespread and valuable.
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ETH (Ethereum). ETH is the second largest cryptocurrency after Bitcoin. It offers security and lower risks to investors.
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ATOM (Cosmos). The ultimate goal of Cosmos is to make blockchain technology more approachable to developers and users. Thus, it could become mainstream and increase in value in the future.
These assets are relatively safe. However, remember to invest as much as you can afford to lose.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.