5 Risks of Investing In Cryptocurrency And How To Beat Them

3 mins read

This article, with my photo, is in today’s Medium

As the world of cryptocurrency grows, so too do the risks involved in investing in it.

In this article, we’ll look at five common mistakes new investors make when entering the crypto space and how to avoid them.

1. Crypto is volatile

The first risk of investing in cryptocurrency is that it is volatile.

Every day, the price of Bitcoin and other cryptocurrencies can change by hundreds or even thousands of dollars.

One way to use this volatility for your advantage is by trading cryptocurrencies on an exchange platform like Binance or Coinbase Pro (formerly GDAX).

You can buy and sell different types of currencies based on their market value at any given moment in time (see our guide).

This volatility can make it hard for investors to know when to sell their coins so they don’t lose money on a bad investment, but this volatility also gives you a chance to make money if you know what you’re doing.

In addition, many exchanges offer leverage trading options that allow users with large amounts of capital access larger positions than they could ordinarily afford without taking out loans from banks or credit unions

2. Market manipulation and whales

The second risk of investing in cryptocurrency is market manipulation, which happens when people with a lot of money (called whales) manipulate the market to their advantage.

Whales can do this by buying up huge amounts of cryptocurrency at once and selling it back into the market at a higher price later on, causing prices to go up artificially.

They also use bots to perform these operations automatically, allowing them to make trades faster than other investors who may not be able to react fast enough.

This means that if you’re an inexperienced investor who doesn’t have much experience trading or analyzing data, it’s easy for you to fall victim when these whales enter the fray.

For example:

Stay with projects you believe in long term instead of trying out different ones all the time; this way whales won’t be able improve their chances of finding an investor who will get caught off guard by sudden price fluctuations caused by their activities.

3. Your own mistakes and security failures

The most common reason people lose their coins is by failing to properly secure them.

If you leave your crypto on an exchange, the exchange can get hacked and someone else will steal your coins.

If you don’t protect your private key properly (or if it gets compromised), then anyone who has access to that information can steal your coins.

If this happens, there’s nothing you can do about it!

And if you don’t have backups of all of your keys, then there’s nothing anyone else can do about it either!

4. Hacks

You might think that your cryptocurrency wallet is safe, but it is not.

Recent hacks have proven this again and again.

For example, in 2018 a major cryptocurrency exchange was hacked and $400 million worth of Bitcoin stolen.

What can you do to protect yourself?

The most obvious answer is to move your funds into an offline wallet like a hardware or paper wallet.

However, even these are not completely secure since they can be lost or stolen as well!

So make sure that you keep good security practices in mind when storing and using cryptocurrency:

  • Always use a secure wallet software or hardware wallet (like Trezor or Ledger Nano S) instead of leaving your keys on an exchange website where hackers know they’re exposed.
  • Don’t give away permissions for any transaction without making absolutely certain it is a legitimate request from yourself.
  • Don’t use weak passwords — the longer and more random, the better!

5. Taxes

Taxes are a huge risk for the average investor.

They can be complicated and hard to understand, and they can also be a big cost for the average person.

You’re probably familiar with taxes, but it’s still worth reading up on them so you know what you’re getting into before investing in cryptocurrency.

To make sure your investment is worth it:

  • Check out the IRS guidelines for reporting capital gains (or losses) on your cryptocurrency investments.
  • Make sure that if you lose money, you don’t get charged with capital loss carryover.
  • Consider transferring assets from one account to another so that all of your investments are in one place, making it easier for tax time — and less risky!

For new investors, it may be easier to begin with a fiat-to-crypto exchange that provides the user with fiat money, such as Coinbase or CEX.io.

These exchanges allow you to buy cryptocurrency by first depositing cash into your account and then trading it for bitcoin or other currencies through a simple interface.

You can use these sites to make trades 24 hours a day, seven days a week; however, if you decide to trade on the decentralized platforms discussed below (such as DexGuru), you’ll need an Ethereum wallet and an internet connection at all times — a major hurdle for first-time investors who aren’t sure what they’re doing yet!

If you’ve had some experience with investing but want something more advanced than traditional exchanges, try using one of the many decentralized exchanges available today like DexGuru or dYdX (which require users download specific wallets before trading).

If this sounds like Greek to you right now don’t worry too much about it — it’s just another option for those who want more control over their funds than traditional trading apps provide.

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