It’s too hard to figure out how much a given cryptocurrency should be worth! The first risk outlined in the SEC’s letter is “valuation,” or the imperfect art of trying to figure out what a given investment should be worth.
With cash-generating assets like businesses or publicly-traded stocks, investment pros generally use ratios between a stock’s price and some other metric such as profits, growth, or cash flow. This is especially important if you, like Warren Buffett or his predecessor Benjamin Graham, are a so-called “value investor,” meaning you seek out assets specifically because they are already worth more than people realize.
Security risk! Scams! Hacking! Theft!
These have been a common theme in the cryptocurrency market since Bitcoin’s inception in 2009. And with each scandal, the cryptocurrencies’ value is compromised as well, although temporary. There are three main ways your cryptocurrency can be compromised. Therefore, it is very important that you follow the safety precautions in every step of your cryptocurrency investing strategy.
risk with investing in cryptos is that there is no coherence to the business overall.. i.e. this is not a shareholding where the price of the coin would be directly linked to the equity base of the company. here we are only wagering on the worth of the business and in totality simply speculating.. that is a huge.. and since it's simply speculation the moves tend to be massive on the up or down thus extreme high risk of losing almost all of the capital..
another one is that there is no regulatory framework in almost all places where cryptos are transacted.
the one last problem is the ease of a crypto being a fraud company and vanishing with all the money!!!
I think that the biggest risk is the fact it's a new technology and no one knows where it will go from here. Who says that all cryptocurrecies won't drop to zero in few months? No one knows that. That's why you only invest the amount of money you can afford to lose. People that are taking loans to buy BTC or any other cryptocurrency are idiots (sorry if someone finds himself in this sentence, but it's true).
Besides, since most cryptocurrencies are relatively young, you can invest $100 if you plan to hold it for a long time. Calculate how much money would your investment be worth if you invested $100 in Amazon or Facebook when they started selling their stocks.
Crypto hype risk is the most important think in the cryptocurrency market.
While getting hyped up in the thought of buying your dream car is a good thing, the hype surrounding cryptocurrencies is not always as exciting. The main reason why there is a lot of hype with cryptos is that most people don’t know about what they’re investing in. So instead, they end up listening to the crowd. The crypto hype back in 2017 was one the many drivers of the fast-and-furious market surge. Once people started to figure out what they’ve invested in, the prices crashed.
The greatest risks is falling into crytocurrencies scams. Others included investing in Crypto that you taught was feasible only to realised you wasted your time, money and other expectation that you would be proud of yourself in future. We have security issue. You have to secure your wallets to prevent being hack. With the presence of security, some big exchanges were hacked such as Crytopia Exchange. There's market volatile, price can increase sharply (expecting profits) and in few seconds become bearish. Market manipulation and consumer protection just to mention a few.
The cryptocurrency market is extremely volatile. So the risk of you losing money is high. Yet, people would say with great risk comes great reward. So, if you are up to the task and are not afraid of losing your money, then go for it. Invest.
The next thing about crypto is the type of crypto that yoy would want to buy. If you are investing, make sure you have done your homework. Know what you are investing in. The risk of you investing in projects that are valueless is great if you just put your money without thinking.
Risks involved in crypto currency are
1. Major one - No one is responsible for loss of money.
In normal world of banking, when some bank goes bankrupt, you can go to court or government for legal help.
2. Can be controlled by hacking.
3. You don't know who is managing the currency.
Below are some of the top risks involved with Crypto investment:
The sharp decline in the value of cryptocurrencies in 2018 is well documented. The MVIS CryptoCompare Index has lost 80 percent of its value since January. That’s worse than the dot-com crash (78 percent) back in 2000.
Buying cryptocurrencies could result in losing everything you invested in them. You should never invest more than you can afford to lose.
Regulatory and legal issues are two of the big obstacles facing the Crypto Sector in 2018.
Because the asset class is so new, governments and banks have not yet formed a coherent fiscal policy for them. Therefore, there’s always a risk that their taxation status, trading rules, or even outright legality, could change overnight.
Once again, these uncertainties mean money you’ve invested in crypto carries more risk than your capital in established asset classes.
The ballooning number of altcoins represents a risk to an investor. It’s impossible to put an exact figure on it, but it’s thought there are more than 2,000 in existence.
And it’s incredibly difficult to know which of those coins have realistic, mainstream, long-term potential. Remember, there are still very few real-world examples of blockchain and Cryptocurrency adoption. The price of the coins is predominantly being driven by speculation.
However, despite the lack of real-world adoption, there is still a considerable amount of capital invested in altcoins.
Unlike traditional banks, cryptocurrency doesn’t have any official safeguards or insurances.
For example, whereas the Federal Deposit Insurance Corporation underwrites depositors’ savings to the value of $250,000 each in both banks and brokerages, crypto exchanges are not part of the program. If your exchange becomes insolvent, you will lose everything.
Similarly, exchanges get hacked on a worryingly frequent basis, often resulting in a considerable loss of money. Whether or not you get any rebate on your lost wealth depends entirely on the exchange; you are at their whim. If something similar happened at your bank, brokerage, or credit card, you’d get your money back swiftly.
There are plenty of evidence that points to manipulation. Coins shoot up by dozens of percentage points over the space of a few hours, only to dramatically fall back to their previous levels the following day. These incidents are referred to as “pump and dump” schemes and take advantage of people’s fear of missing out.
Exiting the Markets
There may come a time when you want to sell your crypto assets and hold your wealth in fiat currency instead.
Unfortunately, the crypto market’s “off ramps” are troublesome for a lot of investors. Yes, the situation is improving, but it’s far from ideal.
Unfortunately, cryptocurrency scams are widespread. For a new investor, it’s easy to get sucked in. Statistics show more than $2 million was lost to scams in the second quarter of 2018 alone.
The two most commonplace scams are fake ICOs and Twitter bots.
ICOs are the crypto version of stock market IPOs. And like an IPO, they require considerable due diligence from a would-be investor. Sadly, many people don’t perform sufficient research. Scammers have been quick to respond. They create hype around a fake IPO, but once you transfer your cash, you will never hear from them again.
Twitter bots are designed to look like official accounts. They typically promise to pay you a fixed amount of a particular coin in a few days in exchange for a small deposit today. They are all scams—avoid at all costs.
You also need to keep an eye for Ponzi schemes branded as altcoins.
It’s all too easy to accidentally place an incorrect order, send your coins to the wrong wallet, or even lock yourself out of your account entirely. Some trading facilities built on the blockchain don’t even have a password reset function.
Of course, you’re also at risk of human error when managing your crypto storage. If you lose your private keys, you might be unable to access or use your assets. And even if you use a secure cold wallet, like a Ledger Nano S, misplacing it remains a real possibility if you don’t exercise caution.
The biggest risk of investing in crypto currencies is losing your investment.