What are the biggest risks of crypto?
All investments come with certain risks, and this is also the case when buying cryptocurrencies. Nevertheless, there are many (beginning) investors who do not take sufficient or even no account of the risks of buying cryptocurrencies. Especially for these investors, we list the most important risks of cryptocurrencies.
Risk 1: You can lose money with crypto
Crypto is very volatile: the price of Bitcoin and other cryptocurrencies sometimes fluctuates by as much as 10% or more in a day. If you enter at the wrong time, you can lose a lot of money. Some people even lose their entire investment by investing in a scam crypto.
Risk 2: Cybercrime
Not only investors are interested in cryptocurrencies, but hackers find digital currencies very attractive as well. However, they choose not to buy the currencies, but to steal them from investors like you. They do this by hacking online exchanges. Once they can access your wallet, you can lose all your digital coins in no time.
Online exchanges are becoming better at defending themselves against cybercriminals. Nevertheless, hacks still occur frequently. Because your wallet can also be hacked, this is certainly a risk to consider if you want to invest in cryptocurrencies.
Make sure to use a strong password and 2FA: this makes it more difficult for hackers to access your crypto. You can also send the crypto to an external wallet: this way you won’t lose your investment if the exchange goes bankrupt.
Risk 3: Hardware problems with an offline wallet
Experts recommend that (beginning) investors store large amounts of cryptocurrencies in offline wallets, where hackers cannot access them. The only problem with an offline wallet is that it can crash. If there is a hardware problem with your offline wallet and you have not made a backup, you will lose your investment.
This does not happen often, but it is good to keep this in mind. Also, hardware problems with an offline wallet are part of the risks of buying cryptocurrencies.
Make sure to always store the private key somewhere safe. This way, even if there are technical problems, you can still access your crypto.
Risk 4: The cryptocurrency bubble
If we look at the value of Bitcoin, we see that it has risen significantly in recent years. This does not necessarily indicate a financial bubble, but there are more and more experts who warn of a so-called bubble.
At the moment, analysts and investors still have a lot of confidence in Bitcoin and various other cryptocurrencies. This means that the chance of a financial bubble is quite small. However, this can change at any time. If confidence drops, a bubble can suddenly arise from one day to the next. In the worst case, you can lose your entire investment.
Risk 5: Lack of supervision
In many countries, crypto is only subject to limited supervision. When you invest in stocks, you can be sure that every party must adhere to strict rules. However, the crypto market is comparable to the Wild West, where everyone can actually do what they want.
This has led to many unreliable parties that do not have your best interests at heart. Be careful when investing in crypto!
Risk 6: No deposit guarantee scheme
When your bank goes bankrupt, you are always protected by the deposit guarantee scheme. This is not the case when you invest in crypto. When a crypto exchange goes bankrupt, you can lose all your crypto assets and money. This happened, for example, in 2022 when FTX went bankrupt.
Risk 7: Crypto is complex
Few beginning investors understand crypto exactly. Crypto is also difficult to understand because it is intangible. Therefore, it is important to read up on it before you start trading cryptocurrencies.
Risk 8: Crypto is (not yet) money
Despite many people calling crypto digital money, the crypto coin is accepted almost nowhere as a means of payment. Crypto will only be truly successful when many parties accept it as a means of payment.
Risk 9: Payments cannot be reversed
When you make a payment with crypto, you cannot reverse this transaction. If you make a mistake, you will likely lose your crypto.
Risk 10: Your transactions can be traced
Bitcoin has the reputation of being anonymous, but this is not entirely true. With many cryptocurrencies, all transactions are recorded in a public ledger. If other people know which wallet address you are using, they can find out which transactions you have made.
Buying cryptocurrencies? Be aware of the risks
You too can invest in a cryptocurrency such as Bitcoin, Litecoin or Ethereum. Before you do this, it is important to be fully aware of the risks of your investment. It is also important to know that while your investment can earn you a lot of money, investing in cryptocurrencies is generally riskier than buying stocks.
Are you willing to take this risk for a hopefully high return? Then buy cryptocurrencies. If you find this too risky, you can also choose to invest in a financial product such as stocks.
In any case, never invest money in crypto that you cannot afford to lose. Due to the high risk, you can lose your entire investment.