There are many risks that come with trading cryptocurrency. Here are some of the most important ones you need to be aware of.
#1 High Volatility
Volatility is the degree of variation in the price of an asset. It’s a measure of risk and can be considered to be a measure of how much security can change in price over time. As such, volatility is often used as a measure of the risk associated with investing in certain securities or assets
Investors use different approaches to measuring volatility. The most common approach uses historical data from previous periods (such as daily returns). By using this approach, we can calculate what percentage returns varied from their average over each period studied. For example: If bitcoin had an average daily return over one year at 1% and its actual daily return was between 0% and 3%, then this would indicate low volatility.
Cryptocurrency prices are highly volatile. The cryptocurrency value for any coin can vary greatly in a matter of days or even hours. It is one of the main reasons why many avoid trading crypto.
#2 Market Size
When it comes to cryptocurrencies, you should be aware of the market size. The market size is a measure of how big the cryptocurrency market is. It includes how many people are trading cryptocurrencies, how much money is being spent on cryptocurrencies, and how many people are using them. When it comes to knowing more about this topic, there are some things that you need to know:
- The number of people who have invested in bitcoin has increased over time
- There has been an increase in interest from institutional investors
- Some exchanges have added new assets
#3 Confusing Regulation
While cryptocurrency is largely unregulated, this doesn’t mean that the market is completely unregulated. Governments and regulators have been trying to figure out how to regulate cryptocurrency for years, but many countries have different rules and regulations on crypto trading. Some countries have banned cryptocurrency altogether, while others are still deciding what they’ll do about it. The country whose laws you’re breaking when you trade or transact in cryptocurrencies will be determined by where you live and/or where your exchange is located. For example:
Japan has taken a hands-off approach by not regulating cryptocurrencies themselves but instead focusing on exchanges and monitoring them closely for security breaches (which happened recently).
In contrast, China banned all initial coin offerings (ICOs), which are used for fundraising through token sales, in 2017 after noticing widespread fraud throughout the industry as well as concerns about money laundering through ICOs, which was rampant at the time due to lack of regulation around how cryptocurrencies were being used by investors worldwide who wanted to get rich quick without having any knowledge or experience with cryptocurrency markets.
#4 Security and Technical Issues
Cryptocurrency is a relatively new technology, so there are still security issues to be worked out. In the past, many cryptocurrency exchanges have been hacked or had their wallets compromised. There is also a lot of money involved in cryptos—which means there are a lot of hackers looking for ways to steal it.
Technological glitches can happen at any time and could result in an investor losing all his or her funds overnight (or even worse). For example, when Ethereum’s hard fork occurred last year on July 20th, 2019, some users lost access to their funds because they didn’t update their wallet software according to instructions from Ethereum developers prior to the fork date.*
#5 The Spread of Misinformation
Although the spread of misinformation is not unique to the cryptocurrency world, it has become an epidemic in recent years. The internet has made it incredibly easy for anyone with a computer and an internet connection to publish their own content on social media sites like Facebook, Twitter, Instagram, and YouTube.
The sheer volume of information available means that fake news is everywhere. And since many people are too busy or lazy to fact-check everything they read online (or don’t realize that some websites are untrustworthy), many people believe what they read without question.
The problem has gotten so bad that even legitimate news sources have been accused of spreading false information about cryptocurrencies. In 2016, for example, Bloomberg published an article claiming that Bitcoin was a fraud—but later retracted its claims after receiving backlash from industry insiders such as John McAfee, who called them “idiots” who didn’t know what they were talking about (the word used in his tweet).
So, when you get into crypto trading, you need to navigate through these risks to be successful.