By | George Aiken
Bitcoin was launched over ten years ago, but the cryptocurrency market is still emerging with new opportunities and projects as potential investments popping up all the time. As a nascent industry, the potential is massive but there is a risk involved. Understanding the risks and how to deal with them goes a long way in mitigating unfavorable outcomes of investment. Going into crypto investment armed with knowledge can make the first steps in your cryptocurrency investment a safer, more rewarding process.
There are three common risks associated with cryptocurrency investment. These are:
- Scams, schemes, and fraudulent behavior
- Marketing hype of a functionless project
Risk #1: The market volatility
Bitcoin is known as a volatile asset, as are other cryptocurrencies and altcoins in the market. Price swings and sharp movements in the industry are not uncommon and this is most obvious during a bear market (which the market is currently facing). The price volatility makes Bitcoin a risk-on asset, but with the high risk, there is the potential for high reward.
To avoid the risk of cryptocurrency volatility, one of the safe approaches to the industry is to buy when the price is low and then avoid trading or selling (especially out of “fear” when the sentiment is negative). “Holding on for dear life” (HODLing) is commonly considered a good strategy if you buy Bitcoin when the price is low. By holding, you avoid losing out on potential profit by selling off in a bear run.
Risk #2: Scams, schemes, and fraudulent behavior
Over the past few years, there has been a massive increase in cryptocurrency scams that the market is facing. As a largely unregulated space, hackers and scammers know how to target vulnerable investors and take off with their money and their crypto. Because of Bitcoin’s untraceable nature, if your funds are stolen or lost, it is impossible to get them back. This means it is extremely important to be aware of projects that will gain access to your accounts or put malware on your devices to avoid falling prey to malicious entities looking to plunder and take your profit. New users need to be especially careful since there are many new technologies making their way onto the market. Always do your research, especially when it comes to investing in automated technologies. Let’s take Bitcoin Method for example, this official website is a good example of a legitimate automated cryptocurrency trading tool, you may find that other sites lack user-testimonials, are vague and do not have half the features stipulated on this official website.
During a bear market, many projects will pop up and tout themselves as a good investment despite the downturn in the industry.
Making sure you store your crypto safely and securely is also important. It is recommended that you use a combination of online (hot) and offline (cold) storage so that if your connection is compromised, your crypto is safely locked off the internet. Avoid clicking malicious marketing links that drop in your inbox and pay attention to safe cyber practice.
Risk #3: Marketing hype of a functionless project and rug pulling
Some cryptocurrency projects place a lot of marketing hype around what a token can do, but when it comes down to the nitty gritties, the project is fairly functionless and is a vehicle for fundraising. This happens often with “rug pull” schemes: In this, a founder or team will market a project to drive the price up. When the price is high, they then liquidate and sell their high-valued assets. This means the value of the cryptocurrency plummets, leaving investors with valueless assets that are associated with a project that won’t go anywhere. It feels as though the rug has been pulled out from under the investors; hence the title.
To avoid falling for marketing hype and a possible rug pull, it’s important to pay attention to what the project can offer and the background of it.
Bear markets and recoveries are both inevitable. If you experience investing through one, do yourself a favor and learn as much as you can about the markets and your own personality, preferences, and strengths. It will pay off in the long run because there is always another bear market coming.
Even if the media tells you not to, don’t be afraid to go your own way. Most of them are in the business of telling you how things are right now, but investors want to know how things will be in five, 15, or even 50 years.