Although digital currencies, decentralized fintech, and blockchain technologies are increasing rapidly, many people are unaware of digital currencies. However, some of the investors also showed their hesitation to get involved in the crypto space. Actually, cryptocurrencies are one of the best choices for investors who are looking for a new way to diversify their portfolios. But there are a few fallbacks in investing in cryptocurrencies.
If you are new to the crypto space and fear of negative aspects of digital currencies, then you need not worry. Here, through this blog, you can explore what digital assets are actually, and how to deal with the disadvantages of investing in cryptocurrencies. To tackle the difficulties in investing in cryptocurrencies, you should know the difficulties. Let’s check them now.
Why Should You Invest Money in Digital Assets?
In whatever way, your money is invested, it is subjected to risk, isn’t it? Likewise a traditional market, the crypto market also has some negative aspects like high market fluctuations. High volatility is not the only problem in the crypto market. Along with this, the investors of the digital space have been experiencing the following problems while participating in the market.
Understanding cryptocurrencies and blockchain technology are really hard for the new participants in the market. If you are one of them, you need to spend more time understanding what it is and how it is working. Most entrepreneurs and investors show their hesitation to participate in the market. So, it will be the biggest barrier for the investors to participate in it.
2. Not Suggested for Long-term Investments
This point is highly controversial as few experts suggest investing for one to two decades, investing in crypto could be a great option, if you have a lot of spare money. But cryptocurrencies are not reliable from many people's perspectives. A few financial experts also suggest investing in crypto with a small amount of money.
Besides this, they suggest not investing in cryptocurrency for the long term. Due to highly controversial thoughts and opinions on this, many investors are not ready to go with such digital currencies for the long term.
3. Security Thread
It is not only about personal safety but cryptocurrencies may cause a threat to world peace from some people’s perspective. This is because cryptocurrencies can hide the real identity of a person who receives and transact the cryptos. This property of the cryptocurrencies allows criminals to easily sell and buy illegal things and weapons even over the internet. When demanding ransom in digital currencies, criminals can conceal their real identities.
At the same time, cybercriminals who develop and launch ransomware prefer cryptocurrencies as their demand to ensure their safety. That’s why most nations support only centralized cryptocurrency activities under the supervision of a central body.
4. Possibility of Losing Money
Even though blockchain technology is highly secured, cryptocurrencies can be stolen by anyone once they get your private key. So, any investor without any basic knowledge about recent technology will be easily frauded by such cryptocurrency thieves.
Any tech expert with the wrong intention can hack your devices and get your private and public keys if you're storing the key with the devices. Ransomware attacks are also a common thread in the crypto market.
5. Crypto Exchange Platforms
Nowadays, most investors are participating in the digital market through a crypto exchange platform. They thought that all such platforms are having high-end security measures. But, the fact is, not all crypto exchanges are good in security. There is also a possibility of hacking such trading platforms.
Hackers can steal money from cryptocurrency trading platforms. In ransomware assaults, cryptocurrency is already the most popular medium of exchange. Ransomware outbreaks frequently have a theme.
6. Lack of Proper Regulation
Cryptocurrencies are a very recent financial tool that has some flaws to be sorted out. Lack of proper regulation is one of them. This is not just a common point of view of a normal investor. Well-known investor Warren Buffet also highlights the absence of any regulatory body in charge of managing assets in the crypto world, as a negative aspect of cryptocurrencies. No supervisory management may cause a high risk. In some cases, this kind of risk is stepped down by adopting a centralized trading practice with a regulatory body.
7. Volatility is also a Matter
As cryptocurrencies are highly volatile, they can be easily subjected to panic sales. The recent downscale of the crypto market is one of the examples of it. A panic sale is nothing but a mass sale of an investment due to fear of loss. Such a high number of sales may result in a significant price drop. In this situation, usually, an investor sells all the investments he/she holds without much consideration for the price received. The primary factor of this kind of risk is the response of investors against fear and emotion rather than analyzing the fundamentals.
How to Reduce Risks in Cryptocurrency Investment?
If investing in cryptocurrency is having such high risks, then how do the top investors reduce their risks? The answer is, “Diversification”. When your portfolio is diversified, you can reduce the risk due to market fluctuations to a minimum.
In the traditional market, this strategy will help you to reduce the risk. For example, during the 2008 market crash, most investors were hit. In this crash, on average, an investor lost his/her 27% who held a mix of 55% U.S. stocks, 30% U.S. bonds, 10% foreign stocks, and 5% stocks. But, in the same crash, those who added international bonds, commodities, hedge funds, and REITs would have a loss of 16% only. This is why diversification in the portfolio is compulsory.
At the same time, investing your money into several commodities and stocks does not mean a diversified portfolio. A real diversified portfolio should comprise investing in assets that are different and also opposite of each other. For example, such diversified portfolios may include retail, transport, and consumer staple company’s stock, along with corporate and government bonds, and gold.
But, the pandemic hit the major market. So, even investors with multiple holdings also were facing losses. In those situations, they start their searching process to safeguard their holdings in a much more diversified way. Here, the need for investment in cryptocurrencies has been emerging among investors.
Likewise, when your portfolio is filled with traditional and digital assets, you can reduce the risk to a minimum. So, as a smart investor, you should consider digital assets along with your traditional assets to prevent you from market fluctuations. But what about the security risks? Let’s check.
How to Be Risk-free in Crypto Space?
As an investor, you should ensure your trading and storing platform is reliable enough. And you should use cold and hot wallets properly to safeguard the private key of your crypto holdings. Only choose the highly secured wallets to store your digital currencies. Along with these, by following the proper security measures you can ensure maximum security for your savings.
If you are an entrepreneur and have an idea to develop a business in the crypto space, then you need a robust solution to convince your customers in all aspects. That means you need to develop your crypto platforms with high-end security features with up-to-minute tech stacks. Simply, if you develop your blockchain platform properly, you can ensure safety for your investors, traders, and users. It includes wallet development, exchange development, clone script development, P2P trading platform development, etc.
That’s why you should choose the best blockchain platform development company. We, CryptoApe can help you to attain such a platform.
By choosing our development solution, you can develop a platform with high potential for high rewards. There are thousands of cryptocurrency trading, and exchange platforms in the market today and each one has its particular quirks. Likewise, you can also establish a unique one to get the attention of investors.
With our solutions, you can deliver the benefits of blockchain technology which is the underlying tech of cryptocurrency to your users. That means the cryptos have been backed by blockchain technology with the power of a decentralized data-storage ledger. That helps to track every transaction undertaken on it. Once you make an entry in the blockchain, it can never be erased. And with the blockchain stored decentrally across multiple computers, no hacker can access the entire chain in one go; any information stored in it is safe for good. By developing a reliable platform like P2P and decentralized platforms with proper security measures you can deliver the goodness of the blockchain to your crypto investors.
By understanding the disadvantages and risks of cryptocurrencies, exchanges, and wallets, any investor can avoid them by following security measures. At the same time, by understanding the fear and precautions procedures of the investors, the entrepreneurs who want to develop a blockchain platform can craft the best one that has the potential to fulfill the needs and expectations of the investors with high-end security. We at CryptoApe support such entrepreneurs to get such robust platforms.