Bitcoin can seduce given its performance. This virtual currency is even considered by some as safe haven in times of crisis. Investing in cryptocurrencies is not without risk. Nevertheless, the risks associated with investing in cryptocurrencies should not be minimized.
Cryptocurrencies are 100% digital currencies, which are exchanged peer-to-peer via a decentralized and secure computer system. Among the virtual currencies, Bitcoin is essential. Investors just need to create a bitcoin address to start with their crypto mining or investing.
Volatility, the main risk of cryptocurrencies
Major Cryptocurrencies are not backed by any physical currency. They are also not tied to a tangible asset, such as gold.
Moreover, they are relatively independent of the political and economic situation. Their prices are determined by the law of supply and demand. All of this makes virtual currencies extremely volatile. It is this instability that represents the greatest risk when it comes to investing in cryptocurrencies. Indeed, if the price of digital currencies can reach highs, it can also plunge overnight, with variations that can be counted in the hundreds or thousands of dollars.
The lack of regulation of virtual currencies
Cryptocurrencies are not placed under the aegis of central banks. And even if legislation tends to emerge, they still escape the control of States and financial institutions. In practice, Bitcoin and other digital currencies have no official price or face value. Due to this lack of regulation, investors do not benefit from any legal guarantee of reimbursement in the event of loss of cryptocurrency units following a technical failure, human error, or theft.
Despite seemingly secure systems, the risks of hacking and theft of cryptocurrency are real.
Investing in cryptocurrencies and scams
There is an additional danger associated with cryptocurrencies, which is not intrinsic to these currencies but stems from their growing popularity. It is the risk of scams. Thus, serious sites mingle with unscrupulous brokers. These offer the acquisition of Bitcoins or other virtual currencies, collect funds from investors, and then disappear with them.
Faced with fine speeches, the prospect of miraculous and guaranteed gains, mistrust must be in order. Note that to have the right to act as intermediaries in the purchase and sale of cryptocurrencies, online service providers must be registered. This maintains a blacklist, which lists sites and companies to avoid.