Investing in cryptocurrency is a highly speculative and risky endeavor. The value of cryptocurrencies can be highly volatile and can fluctuate widely in a short period of time. Additionally, the regulatory environment for cryptocurrencies is still evolving and uncertain in many countries.
Before investing in cryptocurrency, it is important to thoroughly research and understand the specific coin or token you are considering investing in and the technology behind it. Additionally, it is important to be aware of the potential risks and to only invest what you can afford to lose.
It is also important to diversify your investments and not to invest all your money into one coin or token. Diversification can help spread risk and increase the chances of achieving positive returns.
It is also important to be aware of the tax implications of investing in cryptocurrency and to consult with a tax professional if necessary.
There are several risks associated with investing in cryptocurrency: loss of capital, government regulations, fraud and hacks.
Loss of capital. Mark Hastings, partner at Quillon Law, warns that investors must tread carefully in crypto’s unique financial environment or risk significant losses. This is a risk with any investment, but crypto’s elevated volatility makes it an even bigger risk factor .With Bitcoin down more than 60% over the past 12 months, these losses could easily add up to a significant part of the original investment.
Government regulations. According to Michael Collins, CFA, professor of financial planning at Endicott College, many governments have yet to fully regulate the use and trade of cryptocurrencies, which can make it difficult to know what to expect in terms of legal and financial risks. There are even some calling for cryptocurrencies to be illegal in the United States. This is probably an unlikely scenario, but since it has already happened in China, it’s certainly a possibility.
Fraud. As with any unregulated industry, fraud abounds in the cryptosphere. Hastings says, “Cryptocurrency fraud soared in 2022, and the lack of regulatory oversight of the industry left many thousands of investors out of pocket.”
Hacks. Hacks are quite common with crypto. According to Chainalysis, more than $3.2 billion of cryptocurrency was stolen in 2021. Although many exchanges offer private insurance, if you lose your crypto in a hack, you may have no recourse for getting back your investment.
Could Crypto Become the New Global Currency?
Money is a tightly regulated and controlled asset. As was evident from the scandals of 2022—such as Terra Luna, Celsius and FTX—crypto can do significant damage to individuals’ finances in its current incarnation. The majority of the world’s governments would not allow their financial systems to carry that kind of risk.
The UK government is considering CBDC as the alternative to Crypto currency. Central bank digital currency (CBDC) is money that a central bank, like the Bank of England, can produce. It’s called digital (or electronic) because it isn’t physical money like notes and coins. It is in the form of an amount on a computer or similar device. A CBDC is different from cryptocurrency (also known as crypto assets) as cryptocurrencies are not issued by a central bank. If issued, a UK digital currency, would be in denominations of pounds sterling. For example, £10 UK digital currency would always be worth the same as a £10 note. You would be able to use it to pay for things digitally. For example, you could transfer an amount of it to make a payment to someone.
CBDC is sometimes thought of as equivalent to a digital banknote, although in some respects it may have as much in common with a bank deposit. Any UK CBDC would work alongside - not replace - cash and bank deposits.
Does it sound better than Crypto?
The final determination about whether you should invest in crypto can only be answered by one person: you.
Whatever decision you make in that regard, however, it’s worth doing your due diligence, understanding each particular coin’s investment thesis and even talking with a financial advisor.
References :
Comments