Cryptocurrency has captured huge popularity in last few years, but it comes with a significant amount of risk. The main reason crypto is considered as risky is becuase of its extreme volatility. Prices can flap wildly within hours and sometimes in minutes, leading to major gains or losses. Unlike assets such as stocks and bonds, cryptocurrencies aren’t backed by a company or tangible assets and no proper rules and regulations are formed, which makes them more speculative. For young investors or beginners, this can be nerve-wracking as crypto markets can be unpredictable.
Another reason why crypto is risky is that it’s largely unregulated. While financial markets are overseen by regulatory bodies that protect investors from fraud or manipulation, the crypto market lacks these protections. Hacks, scams, and thefts have occurred on various exchanges, in recent news the data of one of the biggest companies data is also leaked but the matter who disclosed before it becomes public.
How Crypto Can Be Manipulated
The decentralized nature of cryptocurrency markets leaves them wide open to market manipulation in one of its several forms. A “whale,” colloquially, means a large investor holding a huge volume of a particular cryptocurrency in question, which can give the market a tremendous shock if huge portions are sold off or if substantial amounts of coins are accumulated. This can lead to immediate surges in prices or even crash the market. Among the many rampant practices are the “pump-and-dump” scam, by which the value of a cryptocurrency is artificially pumped up through hype, and then rapidly sold off in the hopes of reaping profit, only to leave the gullible investor with losses. Such manipulative scenarios further contribute to market instability, especially at the hands of inexperienced investors who do not know about such scams.
One more significant influence of the social media frontier on cryptocurrency comes in the form of statements by some established persona who can cause sharp price increases or decreases within minutes of release. The traditional stock markets are controlled by regulatory bodies, unlike the scene in cryptocurrencies, making it hard to control the manipulations of the markets and thereby exacerbating the risks involved with digital currencies.
The Value Proposition Of Cryptocurrency
Cautious as many may be about the risks involved with cryptocurrencies, those players who have guts to stand through the rough and tumbling nature have so far made some cash out of it. In less than a year, one can invest and make enormous Purse as Profit out of Digital Currencies unlike in the case of other investment scenarios particularly stock markets and bond investments. Asimov said that bitcoin was a few dollars today and tens of thousands a decade ago which saw many early investors become millionaires. They have also seen new clients happy about their other bitcoins with the likes of Ethereum loving the growth being witnessed and so they too are alluring to would be investors who are interested in quick, risky and high rewards.
Even if money can be lost in the stock market quickly allowing traders to exploit price differences, return on investments in the equity and bond markets is consistently very slow. Savvy investors who are tough enough to withstand the storm do indeed have chances to get returns from cryptos that are way above the traditional forms of investments that are seen to be stable. Gamblers should be interested in such assets but they should be warned that a crypto investments have its peaks and its depressions.
Quiz Questions:
What makes cryptocurrency a high-risk investment?
a) Because it has some government authority
b) Because its prices are extremely volatile and it is not controlled
c) Because Some Companies are Guaranteed
d) Because it is a long-term investment with little returns
What does “whale’ mean in cryptocurrency?
a) A retail investor
b) A social media terrorist
c) A retail investor who owns a lot of units of the Cryptocurrency
d) A body that regulates passport control over crypto trade exchanges
What is a “Pump and Dump” scheme?
a) An investment outlook held for a period not less than 181 days
b) Whip up demand by artificially increasing the price of a coin then making a profit by selling it off.
c) It refers to a genre of trading activities which involves stocks.
d) Invest less by diversifying all correlating investments in the crypto sphere.
What is the role of social media in cryptocurrency price changing?
a) By providing expert advice at all times
b) Due to the remarks of powerful people which have the tendency to affect prices in either way
c) By being the one which controls how the market performs
d) By advocating investing in bonds has a considerable duration
What are the reasons some investors may consider a cryptocurrency over traditional stocks or bonds?
a) This is because it guarantees a constant return
b) This is because it is not exposed to volatility risks
c) Because of the high risks offers high return within a short time
d) This is because it has commodities backing it
Out of the possible reasons, what is one of the most economical that is, countries” stock exchanges can be more easily manipulated than the cryptocurrency ones?
a) Financial market’s derivatives market
b) Funds are managed under the control of Financial Committees
c) There is no governing amde over the market activity
d) Shares cannot be affected by the condition of the market
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