The 3 Main Risks Of Cryptocurrency - Accounting Accidentally

Cryptocurrency is one of the world’s fastest-growing markets. Invented just over a decade ago, the first cryptocurrency, Bitcoin, was worth just a fraction of a dollar per unit at its conception; now, in 2020, Bitcoin trades at around $18,000 per unit. This astonishing growth has, as you can imagine, been a result of the growing popularity, and therefore the increased worth, of cryptocurrency.

Many people who are new to the trading game are excited about investing in cryptocurrency. After all, it seems that the only way is up, and considering it is such a young medium with which to trade, the sky appears to be the limit. Nevertheless, there are some serious risks to consider when trading in cryptocurrency. Here are three of the main risks of cryptocurrency, explained.

Scams

With great popularity comes great enemies, and cryptocurrency is no exception. Scammers and hackers have capitalized heavily off the invention and popularity of cryptocurrency; this has led to countless dollars lost from traders who didn’t know better.

Cryptocurrency scammers use your financial information to commit fraud. While your bank should be insured for this kind of thing, it is still a devastating situation to find that your account has been accessed by a scammer. If you are new to trading crypto, make sure you use only verified sources; if you are unsure, a quick Google search should tell you whether you are being conned. For example, looking for online reviews of platforms such as bitcode prime can help you determine the right ones and avoid any scams.

If you want to learn more about crypto scams, research the most common cryptocurrency scams around right now, so you can be well-prepared for any hazards that come your way.

Market volatility

One big risk in cryptocurrency is market volatility. Unlike older industries which have well-versed patterns you can study before beginning to trade in them, cryptocurrency is young and therefore unpredictable.

In 2017, the price of Bitcoin surged to around $20,000; just eleven months later, the price was at around $3,500. This kind of huge fluctuation is dangerous for traders, because you never truly know how the market is going to swing. This means you are more likely to lose money on a cryptocurrency investment than when investing in a different industry that is more stable.

Cryptocurrency is purely digital

Unlike a physical entity such as land, cryptocurrency is an entirely digital commodity. This means that it has no physical representation in the world; if technology was wiped out tomorrow, it would not exist. For all intents and purposes, crypto is a concept, rather than a thing.

Why does this make it risky? It’s not like technology could just disappear in a puff of smoke, right? Well, no, probably not. But if cryptocurrency technology fails, the entire house of cards collapses, and there is nothing physical to assure your money will return to you if that happens. Owning cryptocurrency is not as safe as owning a house, a plot of land, a bar of gold or anything physical at all.

Overall, cryptocurrency is a hot commodity which is only growing in popularity and success. That being said, it is worth paying mind to the risks, so you can be prepared for the worst. Speak with a financial advisor and a tax accountant before investing.

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Good luck!

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/