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What are the risks of investing in cryptocurrencies?
Investing in cryptocurrencies is a form of passive income that has been trending over the past few years because of the bull market. But due to price volatility, it is a high-risk asset. Therefore, it is important to invest in knowing the market and its risks. In order to reduce the chance of losing assets as much as possible The risks of investing in cryptocurrencies come in many forms.
What are the risks of investing in cryptocurrencies?
Cryptocurrency is a digital asset derived from blockchain technology that carries a high level of investment risk. And what risks are there that we should be aware of before investing in the crypto market?
- Coin Scam (Scam): The cryptocurrency market has a large number of new coins created. Many coins can actually be used. But there are many other coins that were created to defraud investors. This method of defrauding investors in the market is called “Rug Pull”.
- Rug Pull: It’s a form of scam for investors in the crypto market. It is a coin created for investors to invest money in and as the coin price continues to rise, the coin maker sells the coin or discards the project until the coin loses its value. Investors who cannot sell coins lose money.
- Exorbitant interest: The cryptocurrency market has CeFi (Centralized Finance or Exchange) and DeFi (Decentralized Finance platforms based on the blockchain world) where investors can deposit funds to earn. Interest has a higher interest rate than the bank. But exorbitant interest comes with risks as well.
- Savings: Investing in cryptocurrencies is necessary to deposit funds in exchanges to trade coins and keep coins in exchanges because they are considered stable. But during the downturn we have seen many big exchanges declare bankruptcy due to their huge debts. This is partly because investors’ money is invested in unsecured coins. For example, Luna is the main cause of bankruptcy of many exchanges.
- Forgot Private Key: Crypto purchased on the exchange can be transferred out and kept for themselves through what is known as a hardware wallet, but in order to use such a wallet, a private key is required. If the password is forgotten, the stored money can be lost.
How to Hedging Cryptocurrency Investments?
With all the risks mentioned above, we can reduce the risk of losing assets in cryptocurrency investments as follows:
- Choose to invest in coins with high market capitalization. In the market, there are high market capitalization coins such as Bitcoin, Ethereum, BNB, etc., and newly minted coins should be avoided as much as possible. Coins with high market capitalization are better suited to long-term investments than coins with low market capitalization.
- Find out about the platforms to deposit money to earn interest, such as CeFi and DeFi. Depositing money carries risks. We should find a reliable platform and the deposit interest is not too high. and learn how the platform uses customer money to do for use in following news
- Keep some money in the exchange. Having money in the exchange increases your trading liquidity and short-term investments. When profits are made on investments, some of the profits should be taken out of the exchange to prevent damage.
- Private Key Notes When starting a hardware wallet, it’s best to write down the Private Key and review it several times because it is the most important aspect of accessing your stored funds. And if there is a device change, it may be deposited in the exchange before we can put the money in the new hardware wallet.
Whether it’s investing in cryptocurrencies or investing in other assets, it’s important to research the risk and reward investment methods carefully before investing your money to mitigate the risks. Risk of losing our investment assets
