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The risk of trading cryptocurrency

Cryptocurrencies have become more widespread in public consciousness in recent years. By now, most people have probably heard of the biggest cryptocurrency, Bitcoin, even if they might not be able to explain exactly how it works. Cryptocurrency is very different from other financial assets. For one, there was never a time in history where “currencies” could be non-local with no way of physically exchanging them. This makes cryptocurrency one of the only assets that are totally dependent on technology. This comes with its own set of risks.

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Cryptocurrency markets also don’t behave like most other markets, and while few will admit it, a lot of it is guesswork at the moment in terms of price movements. Into this scenario come people with absolutely no prior experience in trading, and end up making costly mistakes as a result. Here are some of the risks of cryptocurrency trading that you need to beware of if you’re considering stepping into this field.

Losing Your Coins

This is one of the most terrifying risks of trading cryptocurrency, but one that happens much more often than it should. Basically, some people will make the mistake of keeping their coins stored on an exchange. There’s absolutely no need to do that with crypto wallets, but some people also make the mistake of trusting shady exchanges.

The truth is that the crypto space needs more regulation. As a result, virtually anybody can set up an exchange. And these can fail or be hacked, believe it or not.

So, don’t make the mistake of leaving money on your exchange and avoid exchanges that require you to do so. Get yourself a solid hardware wallet if possible. If you can, a smartphone wallet will do, but it’s not the safest option.

Volatility

Cryptocurrency markets are notoriously volatile compared to traditional markets. And there’s no sign that this is going to change any time soon. This can in large part be attributed to the nature of crypto investors. Many of them are nervous investors, and nervous investors have nervous reactions. There is speculation that large players in the market, also known as “whales”, also move prices up or down to their benefit, by acquiring or selling coins. It’s not uncommon for coin prices to see wild swings in a few days, so that’s one of the biggest challenges of investing in them, even for experts with other assets.

Disruption in the Space

Democracy is at the core of cryptocurrency’s ethos. This also means that things can change very fast and sometimes with little to no warning. Sometimes, hard forks occur when major changes to a protocol are made to split a coin into different entities. These often occur because of a fundamental flaw with a coin. At this point, you can expect to see even more volatility and some coins starting to lose value. This is why it’s important to always stay on top of recent changes.

If you are thinking of trading cryptocurrency in Australia, a safer option than crypto exchanges is to use a broker that is authorised by the Australian Securities & Investment Commission (ASIC).

These are just three of the most common risks with crypto. While it does have its risks, there is also potential for big returns. It’s all a matter of education, and avoiding emotion and blind faith when trading.

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