Investing in cryptocurrencies comes with many risks. Among them are high volatility, unproven rate of return, and lack of government oversight. Unless you can explain your investment to a 10-year-old, you should not consider it. Here is the truth about investing in cryptocurrencies. Keep reading to learn more about the risks. The article below aims to shed light on the most common pitfalls.

High Volatility

The volatility of the cryptocurrency market has long been a source of worry for new investors. While it's true that other financial sectors exhibit volatility, the spread and intensity in the crypto market are higher. Volatility can be attributed to several factors, including the nascent nature of the crypto industry and its decentralization. But there are reliable methods to cope with the high volatility that crypto markets experience. To learn how to handle this volatile trend, take a look at some examples.

There are two types of volatility in the cryptocurrency market: high and low. As with any investment, volatility is a given. High volatility is a risk in any investment, and is expected to occur in the crypto market. High volatility is a common feature of many investment markets, including stocks. Although these investments tend to have high volatility, trillions of dollars are still invested in them. While the volatility can be daunting for new investors, it is a benefit for seasoned investors who are willing to accept a high degree of risk. However, they must be aware that cryptocurrency is not the equivalent of a gold mine.

Investors should understand that high volatility in the cryptocurrency market should not be a cause for alarm. While it can be frightening to invest in such volatile assets, seasoned investors tend to view these moments as opportunities to buy. For this reason, Bucella recommends that investors get used to high volatility in the cryptocurrency market before committing any money. As long as they play the long game, it's possible to profit from high volatility in bitcoin and cryptocurrency.

There are many factors that increase cryptocurrency price volatility. Some of these factors include positive or negative news coverage, earnings reports that are better than expected, and unusually high or low trading volume. While high volatility can lead to high profits for the investor, it also increases the chances of a large loss. The price of Bitcoin can swing dramatically, especially if the investor isn't aware of its volatility. When volatility is severe, businesses that sell the cryptocurrency may experience astronomical gains.

Unproven Rate of Return

While it's true that cryptocurrency has an unproven rate of return, it's still not clear if you should invest. Trading in cryptocurrencies is much like gambling. There's no established pattern or standard for calculating value changes. You can't use growth stock mutual funds to calculate returns, and you have no proof of the value of the coins. And the currency doesn't have the same credibility as other investments, such as paper money.

There are many cryptocurrency investment opportunities out there, and you should be cautious when making your decision. Some of these opportunities are aggressively promoted through social media. While these offers may seem too good to be true, they are probably scams. Beware of high returns or promises of huge returns. These investments may sound too good to be true, and you should be wary of any investment scheme that promises 10,000% returns overnight.

The first thing you should know about cryptocurrency is that prices are extremely volatile. Just a simple sneeze could cause prices to plummet. There is no proven rate of return on cryptocurrency, so you should be prepared to lose all of your money. The price fluctuations are not a sign of a good investment opportunity, but they may tempt unsuspecting investors. Investing in cryptocurrency should be done only after you've researched the market thoroughly and are aware of the risks.

If you have little knowledge of cryptocurrency, it's a good idea to invest in the smallest companies you can find. If you're already familiar with Bitcoin, you may want to trade your existing crypto for Ethereum. Before you buy crypto, you'll need to fund your account with fiat currency. Many exchanges accept credit cards, but this is a risky move with volatile assets. Using credit cards is risky as you risk incurring interest charges if your investments decline in value.

Lack of Government Oversight

One of the main reasons why investors invest in cryptocurrencies is because they believe in their potential as a stable investment, but the absence of government regulation creates the risk of fraud and manipulation. Financial experts advise that crypto investors keep their holdings below five percent of their portfolio, and that they should not invest in cryptocurrencies at the expense of saving for emergencies or paying off high-interest debt. Here, experts explain why they think more regulation would be a good idea.

There is some skepticism, though. A recent study by 2iQ Research found that 21 members of Congress have trading accounts and that only seven of them are members of key regulatory committees. There is a lack of government oversight, but there are some steps lawmakers can take to help keep these digital currencies safe. First, they can put them in a blind trust, which prevents them from directly influencing their decisions. Second, they should avoid participating in the process of trading.

While the SEC does not have any specific authority over cryptocurrencies, it has been aggressive in the area of digital assets. For example, it recently sued five individuals who raised more than $2 billion in cryptocurrencies. In addition, the SEC is currently engaged in three separate enforcement actions related to digital assets. This suggests a lack of regulation, but the SEC is making progress. This is good news for consumers who are concerned about their investments, because it signals an increased degree of investor protection.

The United States must ensure that appropriate controls and accountability exist for digital assets. Regulations should promote high privacy and security, as well as protect consumers and businesses. Additionally, regulating digital assets should include national security and anti-money laundering concerns. Those concerns are exacerbated by the lack of government oversight. In the end, the benefits of digital assets outweigh the risks associated with them. Therefore, regulation must continue to evolve as the technology evolves.

Investing in a speculative asset

Conclusion

Investing in speculative assets like cryptocurrencies can be a risky business. Although many investors are interested in them as a hedge against inflation, they have no fundamental value. According to an article published by Coinrule, the market value of cryptos is entirely based on speculation, which is essentially educated guesswork. Investing in speculative assets can increase the volatility of your portfolio, but be careful to avoid making investments that you cannot afford to lose.