The cryptocurrency movement is still in its nascent stage as of 2021. With this reality, finance experts have issued statements of warning for cryptocurrency investors who fully decided to pour their investment funds into these digital assets.
We want to share key insights from the latest informative The Motley Fool article with our readers. We think it can help them understand why they should be cautious when approaching crypto-assets as an investment class.
According to the article posted online by private financial and investing advice firm, The Motley Fool, there are many expressions of warning for cryptocurrency investors dispensed by finance professionals. The following are four of them:
- In the foreseeable future, cryptocurrency wallets will remain as hackers and other criminals’ targets.
This warning for cryptocurrency investors comes as virtual assets have become a favored method of exchange for hackers and criminals’ ransom payments. After all, cryptocurrency wallets feature anonymity and lack government oversight.
Additionally, unlike conventional currencies, cryptocurrency transactions exist outside the government’s purview and are getting more difficult to track.
- Bitcoin’s value could plummet to zero in an instant.
At the time of writing, Bitcoin trades at exactly $62,451.21. However, one warning for cryptocurrency investors is that this crypto-asset and the others are speculative, and they should watch out for this perilous nature.
Business magnate Warren Buffett and JPMorgan Chase chief executive officer Jamie Dimon have affirmed that cryptocurrencies’ value is zero. Thus, virtual currency investors should keep in mind the risk of new cryptocurrencies coming to the scene and displacing the present leaders.
- New investors usually cannot stomach cryptocurrencies’ extreme volatility.
Bitcoin’s trading price has skyrocketed over the past decade. However, holders of this flagship crypto-asset needed to weather drawdowns of 20 percent or more or 20 different official bear markets during that period.
Plus, Bitcoin holders have had to deal with three drawdowns of 80 percent or more or five drawdowns of 50 percent or more. These events affirm that cryptocurrencies come with massive volatility.
This obvious hazard adversely impacts relatively new investors and those who place too much of their investment funds into virtual currencies.
- All crypto-assets are not covered by insurance.
Another warning for cryptocurrency investors is that virtual currencies are not similar to cash holdings at traditional banks. The latter are safeguarded by deposit insurance agencies like the US Federal Deposit Insurance Corporation.
With cryptocurrencies, there is no insurance agency or insurance product that will protect these virtual assets up to a certain amount. Many investors find cryptocurrency investing exciting.
After all, they are engaging with a totally revolutionary investment asset class they believe can deliver considerable returns fast. Nevertheless, the abovementioned four statements of warning for cryptocurrency investors are important.
They serve as a guide in taking extra care with one’s investments. We also believe cryptocurrencies are similar to many websites and startups that have mushroomed over the years.
Plenty of them thrived and are still existent today. However, many websites and startups did not survive as well, resulting in them getting shut down by their owners.
Similarly, we believe cryptocurrencies can either thrive or go bust and lead investors into instant poverty. Hence, we recommend our readers observe the four statements of warning for cryptocurrency investors to stay guided in their investing journey.