Investing in cryptocurrency is a lucrative opportunity. However, before you invest, here are a few things you should know.
#1 Cryptocurrency is Vulnerable to Fraud
Cryptocurrency is not regulated by the government. It’s not backed by the government, which means it doesn’t have FDIC insurance. This might sound like a good thing – after all, you don’t want your investment to be subject to restrictions. However, it also means that you are vulnerable to fraud and theft as cryptocurrency markets are unregulated and mostly anonymous.
Cryptocurrency is not safe and secure because:
- The value of cryptocurrencies can change quickly due to factors outside of your control like market forces, other people’s actions, or even political instability in certain countries where crypto transactions take place;
- Cryptocurrencies aren’t insured or backed by anything (like gold); they’re just computer code running on computers that could stop working at any moment;
- Some cryptocurrencies have been hacked before (like MtGox), so there’s no guarantee that yours won’t be next!
#2 Cryptocurrency Value is Unpredictable
Cryptocurrency markets and values are unpredictable. The cryptocurrency prices can fluctuate widely over a short period, and the value may be impacted by external events that happen to the currency itself or any other digital currency.
The price of any digital currency is also often highly volatile. So, invest as much money in digital currencies as you’re willing to lose completely. Once you buy a currency, there are no guarantees about its future performance, but if something goes wrong with your investment then you could lose all your money within seconds (or hours).
Cryptocurrency prices are not stable and they can fluctuate wildly at any moment without warning or notice from financial institutions. If this happens, your account balance could go up or down by thousands of dollars within minutes. That makes it impossible for most people’s budgets, so we recommend reading our guide below before investing anything!
#3 Cryptocurrency isn’t Insured
You might have heard about the importance of insurance. It is a way to protect yourself against risk, which is something that can happen when you invest in cryptocurrency. But what if there was no insurance? Would you still invest?
Unfortunately, it’s not an option for cryptocurrency users because there are no policies available for this type of product or service yet. In fact, according to the Financial Times article “Crypto-Insurance: All About That Base,” only $2 billion worth of crypto was insured as of May 2018 (and most of these policies were purchased by large corporations). That is less than 0.1% of the total market value!
#4 Cryptocurrency Doesn’t Provide Any Cash Flow
It is necessary to understand that cryptocurrency is not like stocks, where you own an actual part of a company and receive dividends from the business. Cryptocurrency doesn’t offer any cash flow, which means it is not an investment in a company. Instead, you’re speculating on the future value of digital assets and hoping they’ll increase over time (or at least hold their value).
That also means that when you buy cryptocurrency like Bitcoin or Ethereum, there aren’t any managers or employees working to make sure it increases in value or pays dividends. You are responsible for doing all of your research into cryptocurrencies and building your system for tracking them over time so that you can make informed decisions about when to sell them or how much money you should put into each one.
#5 Cryptocurrency can be a Tax Nightmare
As with anything in the investment world, there are tax implications to consider. Cryptocurrency is not taxed the same way as stocks and bonds, which are considered securities. When you buy an asset like a stock or bond, it’s considered a capital asset by the IRS, meaning you have to pay taxes on your profits (or losses) every year.
A cryptocurrency trade does not necessarily follow these rules. The IRS views cryptocurrency as property for tax purposes: If you sell bitcoin for more than you paid for it within 12 months of purchase and that gain is greater than $600, it is taxable income. But if the price has gone up significantly after one year, then any profit over $600 would be taxed at ordinary income rates instead of lower capital gains rates.
That can make it harder to calculate how much money you’ve made in fiat currency when using crypto-to-fiat trades. It may throw off your entire financial picture if bought with dollars at one price point but sold later on down the line without adjusting its value first.
#6 Cryptocurrency like Rocket Rides and Free Falls
Cryptocurrency markets are volatile—and that means you should expect to lose money, even if you think you’re going to make it. The price of Bitcoin has been known to fluctuate by as much as 10% in a day. Other cryptocurrencies have also lost value (or gained value) over short periods.
The volatility of cryptocurrency trading can be especially dangerous for beginners who don’t know what they’re doing or how to protect themselves from it. If you’re an investor with more than $10,000 worth of cryptocurrency assets, consider getting insurance through something like a CryptoProtect policy from Lloyds Banking Group which protects against losses due to hacking and theft, among other things.
#7 Cryptocurrency is Not Free from Risk
Cryptocurrency is a high-risk, high-reward investment. As with all investments, you need to be prepared for the possibility of losing money. Cryptocurrency is not FDIC insured and it is not a safe investment.
Although cryptocurrency has been around for almost a decade, there are still many unknowns about how this growing industry will play out over time. There is no guarantee that any particular cryptocurrency will succeed or even if it will exist ten years from now.
The most important thing you can do as an investor is research the coin you want to invest in and ask yourself if there is something unique about the project that gives them an advantage over other cryptocurrencies in the market?