- February 8, 2021
- Posted by: admin
- Category: News
Cryptocurrencies have become an interesting topic for investors. As with any topic that appears and becomes excessively popular in the press, media and social media.
There are different opinions and a lot of noise around, which makes it difficult for investors to get a clear picture of the risks involved.
The truth is that cryptocurrencies are still in their infancy and have many significant risks that require investor attention.
Over time, these risks will increase and decrease and new risks will appear. If you are considering adding a cryptocurrency to your traditional investment portfolio, here are some critical risks to examine.
Price volatility and manipulation
Cryptocurrencies have been on the rise and fall. Investors and enthusiasts have been stunned by epic booms, volatility and scams, who have seen unprecedented gains and losses over the past decade.
For example, here is the cryptocurrency chart on daily return volatility (14 day average) and Bitcoin price comparison against the S&P 500 (market index). The volatility in Bitcoin (BTC) and other cryptocurrencies makes it difficult for investors to build confidence and make gains.
Volatility in cryptocurrency prices is common and generally results from three main sources. Sense, speculation and manipulation of the market. It is the unregulated and anonymous nature of cryptocurrency markets combined with the susceptibility of cryptocurrency transactions and other crypto assets to the haunting sentiments, emotions and publicity that makes prices volatile.
Cryptocurrency trading platforms, media owners and powerful investors can manipulate prices. This manipulation appears to be widespread – though not yet widely proven. The most commonly used manipulation strategies include fake trading and manipulation processes like bump and dmp … etc.
Lack of regulations
Lack of regulatory frameworks means a high degree of uncertainty such as price volatility and manipulation. Investors and entrepreneurs are also concerned about the possibility of future restrictions that could have a significant impact on the value of crypto transactions or ban them altogether.
For the most part, crypto regulations are complex and unregulated. One area of particular interest to investors is tax treatment. The absence of regulation, or so-called “regulation,” means that some investors are afraid to invest because they do not have a clear understanding of what tax liabilities should be taken into account or what actions to take and which records should be kept.
The good news is that regulators are joining. Authorities in many jurisdictions are taking steps, research papers, and standards to regulate and introduce new regulations. And one of the first countries to start building a strong regulatory framework is Bahrain. The country has proposed an idea to reduce the rules to a minimum while maintaining companies’ compliance with legislation through “sandboxes” that allow startups to experiment and innovate under controlled conditions.
Britain and Singapore have been exploring the crypto regulatory environment and blockchain, as well as providing platforms that enable companies to experience regulatory and licensing requirements. In the United States, the New York City Attorney’s Office recently launched the most comprehensive study on exchanges.
Adopting the market
Thanks to the downturn in the market, the entire cryptocurrency market is below the market size of McDonald’s. But even before the recession in 2018, the cryptocurrency and cryptocurrency market compared to other markets such as the forex, gold and stock markets was considerably smaller.
The market adoption process remains low for a host of reasons from regulatory concerns and technology deficits to market volatility, public misunderstanding and the fact that cryptocurrencies and the underlying blockchain technology it is working to manage is still in its infancy. This means that there is a chance that this category of cryptocurrencies, which is hindered by many different factors, and the regulations of which one is one of them is not widely adopted, resulting in a complete loss of value. There is a clear need for more regulations, technical improvements, and institutionalization to help boost trust and scope.
Security, custody and consumer rights
Cryptocurrencies and other digital assets can be stored, but these businesses are still risky. There have been major theft of personal wallets but also cases of wallet seizure of cryptocurrency trading platforms.
Piracy remains a constant threat if encrypted assets are not properly stored and preserved. To make matters worse, lost or stolen digital currencies cannot be recovered and wrong transactions cannot be reversed. Also, unlike traditional investing through a bank or brokerage, cryptocurrencies do not contain formal guarantees or insurances. The deductions for lost investments depend on the whim of your organization.
The good news. Custody solutions that give financial institutions the ability to purchase cryptocurrency contracts on behalf of trading clients are starting to appear. This is expected to stimulate the entry of institutional capital into the industry and, in turn, provide a reliable seal of approval for individual investors as well.
The exchange platform “Coinbase” announced a product that supports custody (custody) upon completion of the first successful deposit. Multinational Citigroup Bank, a multinational investment bank, announced that it will provide pilot storage solutions for institutional investors. Citigroup launched a product called “Digital Asset Delivery” intended for institutional investors to securely invest in banking in an orderly and secure manner. There is also Fidelity, which announced a separate new company called Fidelity Digital Asset Services. The incumbent on Wall Street will take over the nursery school
Major cryptocurrencies such as Bitcoin and execute trades for investors such as hedge funds and family offices.
Exit from the market
The entry and exit portals of the crypto market are a real problem for many investors. Many platforms only allow withdrawals in the US dollar, others allow the euro, the British pound and the Japanese yen, and the platforms for buying and selling digital currencies often require a minimum number of withdrawals when withdrawing into the currency.
Many of the platforms that support cash withdrawals only accept a few prominent cryptocurrencies and withdrawing paper money requires investors to undergo a painstaking verification process that can take months.
Some platforms have also been accused of withholding funds for unclear reasons, and many banks are still very wary of accepting money from selling cryptocurrencies. All of this exposes investors to the exchange rates, fees and risks associated with dealing with opaque platforms. It’s getting better, but it’s far from ideal.