Every bit of technology being launched today and will be introduced tomorrow comes with added flaws that make the technology, not 100% secured. The same is the case with cryptocurrencies that have some serious risks associated with them when it comes to investing. With most people, especially the youngsters rushing to invest in the leading cryptocurrency, it is crucial to make them aware of the concerns surrounding digital currency and the cryptocurrency crash that took place recently.
The news about the latest cryptocurrency crash went viral when the price of the most successful cryptocurrency, Bitcoin, suddenly crashed in the market. The Financial Conduct Authority (FCA) had also issued a statement where it warned the people about the risks of investing money in any of the crypto assets. They even warned the people, saying that investors investing in cryptocurrencies should keep in mind that they might lose all their money once it crashes as the financial services compensation scheme does not protect such investors. They even cannot avail the financial ombudsman service for redressal.
5 Major Risks Associated With Cryptocurrency Crash
The world of cryptocurrency constituting Bitcoin, Etherium, Dogecoin, Bitcoin, XRP, or others, has a net worth of about $2 Trillion. But, still, it is not big enough to rule the world and stands at a distance from the rest of the economy, making it unpredictable when will cryptocurrency crash. Cryptocurrency has been working only on speculations and hopes to be the primary trading medium in tomorrow’s tech-ruled world. Therefore, to equip you with correct and authentic information on cryptocurrency and the risk involved with it, we have jotted the top 5 risks involved in crypto that will help you understand why you should stop investing in this highly lucrative digital currency.
No market analyst can predict the coming of the cryptocurrency crash. But, what they can answer is the question: will cryptocurrency crash? Because after years of studying n and research, all of them have come to one conclusion that the viral virtual currency market will fall sooner all later. So, without delaying further, let us see the top 5 risks linked to cryptocurrency investment.
1. A Very Young Technology
Even after being a decade old, cryptocurrency is still considered a young technology by the market experts who view that there is a lot more about this virtual currency than what is shown. The cryptocurrencies that are there in the market are yet to evolve into stable currency.
Seeing the unexpected changes in the past, no specialist can predict the path that the cryptocurrency will take shortly. There is no particular type of valuation method to value such currencies correctly. It lacks government support and also does not offer an income opportunity, unlike stocks and shares. They are not of any fundamental use because of the absence of their physical form. All these reasons lead to one tragedy, i.e., the cryptocurrency crash.
2. Financial Loss
Bitcoin, the most popular cryptocurrency in the world, is termed as a Ponzi scheme where those at the helm benefits from the ignorance of the others. There’s a theory that says, when more people buy crypto, a bubble economy is created. And, when this bubble bursts, that cryptocurrency will be left useless in reality.
At this point, many investors will hold the currency who want to sell it but will fail to load the same. There is also no guaranteed return on their investment. Also, the cryptocurrency crash and the subsequent unbearable financial loss will mainly arise because of not legal regulation to back the investments, zero physical collateral, and a volatile market.
3. Has Restricted Usage
Cryptocurrency may be a potential new monetary exchange in the future, but currently, only a few virtual sites have started accepting crypto as a medium of exchange, like Monoprix, Overstock, and Newegg. Some travel companies have accepted crypto as a viable form of money and allow their travelers to through digital currency.
Such as CheapAir.com, Air Lituanica, and AirBaltic. However, that is only a tiny segment of the market willing to accept cryptocurrency as a medium of exchange, which does not seem to rise in the future, which means a cryptocurrency crash might occur.
4. Withholding The Blocks
Creating a new bitcoin means solving mathematical equations, known as “blocks,” that only occur when an existing cryptocurrency is exchanged online. A mining pool uses computational power to mine a block, which they keep hidden from the loyal miners, instead of launching the new blocks in front of the whole network. This formula is like an underground tunnel that can only bring riches to those who have discovered it and keep it hidden from the rest of the world, while the honest ones are left only with a penny. Any hoarding or withholding may result in an excellent cryptocurrency crash.
5. Volatility and Market Fluctuations
Cryptocurrency is the most volatile and inconsistent intangible commodity to trade in with zero intrinsic value. Unlike the ordinary shares and stock market, the value of cryptocurrencies is fixed depending on the percentage that people want or the percentage that people do not want. For instance, its price rises dramatically if there’s a sudden demand for it in the market. And, when these people start selling them, their prices fall below expectations.
The reason for this is the absence of a regulatory body that can control and keep an eye on the operations of this dramatic virtual currency. The lucrative feature about cryptocurrency is that it does not attract tax of any type, making people think of it as a tremendous money-making investment opportunity. The investors are not aware that there are online fraudsters who are waiting for you to move towards them, and once this happens in bulk, a cryptocurrency crash will occur.
Besides, there are several other risks that cryptocurrency carries with itself, like, storage risk, cybertheft risk, high dependency on technology, whether crypto is a currency or an investing commodity, and more. These risks cannot say why did cryptocurrency crash? But, it can be a significant reason for the cryptocurrency crash to happen again. So, always be alert and cautious if investing in cryptocurrencies.
Additional Reading:
