Cryptocurrencies, simply referred to as cryptos, are the new investment instruments that no one wants to miss. When reports about the mammoth growth of Bitcoin (BTC) value from less than 1USD in 2009 to over USSD35000 in early 2022 are highlighted, many people rush to the nearest exchange to buy BTC. It is a good idea because cryptos are only emerging and their value is expected to grow even faster because of the rising demand. However, you need to appreciate that they are not without some risks.
By understanding the risks involved in crypto investing, you can prepare appropriately on how to minimize or overcome them. Keep reading as we dig deeper into these challenges and expert suggestions on how to avoid them.
High Price Volatility
The primary challenge associated with cryptocurrencies today is high volatility. The price of the different coins can swing so much within a very short time. When news against the blockchain or cryptocurrencies is released, the price of the coins drop and can cause huge losses to investors. However, the reverse is true when crypto-positive news hits the headlines.
When looking at price volatility, it is important to appreciate the silver lining. Unlike the first ten years following the launch of Bitcoin, more parties are now embracing cryptos. Therefore, the demand is expected to grow and ultimately yield high returns for crypto investors. So, do not just look at the daily or monthly changes of crypto prices; taking a long-term target might deliver more.
Dilution from Hard Forks
The design of cryptocurrencies mainly relies on decentralization, where users spread in the network have to come to an agreement on all matters affecting the respective network. This is an excellent thing because people using the blockchain networks can run transactions on a peer-to-peer basis without involving third parties, but it can also be risky when the participants disagree. In extreme cases, the blockchain undergoes hard forks, such as the one that created Ethereum and Ethereum Classic. Bitcoin has also undergone several forks that created new coins, such as Bitcoin Cash and Bitcoin Private.
One attribute of blockchain technology is that it is not owned by any single individual or party. Whether you want to send cryptocurrencies or simply use them as investment, there is no authority that has direct jurisdiction over it. This has triggered fears that governments might be looking for ways to regulate the coins. However, the realization that blockchain and cryptos have a huge potential to make services in different sectors more effective is likely to attract favorable legislation. Here are some positive use cases of blockchain and cryptos that have made governments start supporting them:
- Blockchain helps to promote traceability in the supply chain network.
- Offers an excellent method of storing medical data for patients without the danger of tampering.
- Provides an excellent way for investors to direct their funds, especially in times of crisis.
- Capability to reach and serve even those that the traditional banking services are unable to meet.
The risks we have highlighted above can be scary, especially for people targeting to inject a lot of money into cryptos. However, you cannot be left behind in getting into this crypto niche because it represents the future of finance. The lovely thing about the entire crypto and blockchain niche is that you can avoid these risks and optimize returns by diversifying your crypto portfolio. Instead of simply buying Bitcoins, consider dividing the funds into smaller portions to include Ethereum (ETH), Cardano (ADA), and Solana (SOL) coins.
You should also work with experts who can help you better predict the market and take timely action. Today, one of the best platforms is hi.com, the leading DeFi platform for buying, selling, and earning from cryptos. Visit them now to learn more about cryptos.