It is not far-fetched news that investments in cryptocurrencies have provided huge returns. The return of investment in these currencies has been attributed by some experts to the merits they offer. However, it is important to understand that cryptocurrency is still maturing, therefore there are some pitfalls in investing in it.
In this article, we will highlight some of the disadvantages of investing in cryptocurrencies which must be put into consideration before having a delve into its investment or trade.
Cryptocurrencies have been around for some time but their technology is still in the maturity phase. This has then made the crypto market to be volatile, in which what will happen in the days to come can not be accurately envisaged. The crypto market might experience a bullish price or bearish price as the case may be.
In the crypto space, the preponderance of the investors is not wary of the speculation or volatility characterized by the cryptocurrency market. So investors who are exploring ways to have a feasible source of value for their investment are always not deterred by the narratives surrounding cryptocurrency.
2. Unregulated Markets
The greatest advantage of cryptocurrencies is thr ability to operate without the meddlesome of the central bank or the authority in regulating its activities. Paradoxically, this dubs the biggest disadvantage of cryptocurrency investment.
Due to no financial mediation by the central bank, every crypto transactions are irreversible. Also, no government of any nation regulates or enforces the value of the coins. The price of the coin is solely determined by the value placed on them by peer investors in the crypto market. This means investors are the major actors in determining the price of a coin, and their opinions and stands.
3. Legal Issues
The anonymity of identity is a major problem of cryptocurrencies. Concerning this, it is a breeding ground for crime syndicates who perpetrates illegal activities on the exchange platform. Money laundering tends to be easier as the operations of cryptocurrencues are decentralized. This is a great worry for many crypto investors as aiding and abetting money laundering can be subconsciously initiated. This fear has made many people opt from its investment.
In addition, many countries of the world have made the issuance and acceptance of cryptocurrencies illegal, hence placing a ban on its operation in their respective countries. This translates to imbibing illegal activities if they trade or invest in cryptocurrency with a penalty to its effect.
4. Data Loss
The fund invested in cryptocurrencies is stored in digital wallets which are encrypted by both public and private keys to enhance its security. In the event of the owner losing these passwords, he might not be able to access the funds on his own or through an alternative means.
5. Data Theft
The entirety of the system operated upon by cryptocurrency networks is relatively safe. This poses difficulty to being compromised by hackers. Notwithstanding, individual accounts can br hacked into by social engineering or phishing. This simply means investors can be tricked and lured to divulging their passwords voluntarily without hacking into the system.
Data theft has become a norm amongst crypto investors, such that the year 2020 recorded a crypto-related theft of about $2 billion. Today, some fintech companies are already putting some security ecosystem in place to provide adequate security solutions.
The cryptocurrency market may be raving because of its value boom, but it is not yet in the mainstream of the crypto market. However, there is still some variety of risks that need to br mitigated at the systemic level.