In recent times crypto trading has become a popular source of income for a lot of people – especially those in the younger generation. In fact, a study showed that 31% of 18-24-year-olds would rather invest in crypto than other traditional stocks and bonds. Regardless of its benefits, though, there are a couple of risks associated with trading cryptocurrency and it is important to learn how to avoid them before you get started.
On that note, let’s take a look at five risks of trading cryptocurrency and how to avoid them!
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Crypto Scams
Even if you are not getting scammed, your crypto might not be safe in your wallet. That’s because Crypto hackers can take your crypto straight out of your wallet.
For instance, in August 2021, $600 million worth of crypto was stolen when a blockchain site called Poly Network was hacked. You can store your crypto in two ways either online in a secure wallet or physically on a storage device.
Nothing on the internet is 100% secured but storing your crypto on a storage device means you also bear the risk of getting it lost, damaged, or destroyed.
The best way to go is to have a mix of storing some of your crypto online and some physically on a drive.
Government Regulations
The crypto market is majorly unregulated and has been like that since its inception. However, governments worldwide have begun to take steps towards regulating the market. Governments develop different strategies for regulating the market in whichever way they can.
Countries like the USA have decided to tax crypto investments/holdings while other countries like Nigeria and India have even gone as far as banning the use of crypto. These government regulations or even just rumors of them can result in a dip in value on the crypto market, and could also mean you losing access to your crypto assets.
The good news is that some governments like El-Salvador are embracing cryptocurrencies and others are interested in starting their own national cryptocurrencies.
Volatility
Probably the most outstanding feature of online trading cryptocurrency is its volatility.
For instance, just between December and May, Bitcoin’s price bounced between $50,000 and $30,000. The rise and fall of prices on the crypto market make it attractive to crypto traders due to the large profit they stand to make but this also makes the market quite risky.
As much as there is a chance to make a good profit on your assets you also stand the risk of losing your entire position due to the market’s volatility. To avoid losing your entire position to a dip in the market it’s advisable for you to diversify and only invest a percentage of your portfolio in crypto.
Crypto Hacks
Since the market is unregulated, there are a bunch of scams out there, so crypto traders need to be wary. There are a lot of scams involving the use of phishing emails and other underhanded means to rob you of your crypto.
It’s important to be careful with the links you click and trade your crypto with a reputable crypto exchange.
Losing Your Crypto Key
Your crypto key is a unique code automatically generated when you open the crypto wallet that grants you access to your assets. These keys are often 12-word phrases, and if you lose this phrase, you would probably lose access to your crypto forever.
The best way to avoid doing this is by making sure that you store your crypto key in a safe place, in hard and soft copy, so you don’t lose it. It’s important to note that before you get started trading crypto you should do proper research and also get in touch with your financial advisor.
