7 High Risks Involved in Cryptocurrency Trading

If you have considered engaging in crypto trading you have surely considered the risks involved in it. When you know about the high risks in trading you can take adequate precautions to avoid these situations or prepare yourself to tackle them in case they are unavoidable. You can identify your risk tolerance levels and create a strategy for wealth protection.

1. The biggest risk of course is the security risk. You have to understand that crypto assets, like regular money, is capable of being stolen. Digital currencies get hacked and this has been common since Bitcoin's inception a decade ago. However, the good news is that every such scandal may have led to a fall in value of the coin, but it has bounced back. The best way to protect yourself is to learn about every coin's protocol to make sure there are no bugs that may prove dangerous for your savings. Protocol can be found in the cryptocurrency whitepapers readily available online but these will rarely have shortcomings mentioned in them.
3. Going by the hype centering on a particular crypto asset can be very risky. The reason for such unexplained hype is the uncertainty about these assets; no one really knows what they are getting themselves into. So, the best way to handle this risk is to learn about the crypto coins that interest you instead of depending on what others are saying. Investors betting on hype will meet with a disastrous end and this becomes gambling, not investing.
5. Volatility is undoubtedly a huge risk when it comes to crypto trading. The market is unpredictable and price swings dramatic. This volatile nature of cryptocurrencies has attracted investors and traders to them but this may catch you unawares. And if you are not prepared for things to go wrong and prices to nose-dive, you may be in for a rude shock. When you are into autonomous bitcoin trading using bots you will have to be aware of speculated news like bitcoin truffa or scam in the cryptocurrency market.
7. Another risky area is the cryptocurrency exchanges where you will trade crypto coins. These are not always secure or reliable; incidentally, many security breaches and hacking incidents in the past have proved this. So, you must keep your crypto coins in wallets which usually conform to the dual-factor authentication system. Since the hardware wallets are physical wallets and in your control, the security risks are fewer. You have both public and private keys with you and you can even keep backups of these keys for extra security.
9. Liquidity risks are the risks of being unable to sell off investments fast at a good price. With cryptocurrency, there can be illiquidity episodes. When liquidity becomes low, manipulation of prices is a possibility. However, if more and more people start to accept crypto investments, the market will experience higher liquidity. So, before trading in any crypto asset, it makes sense to find out its liquidity; while lesser-known coins may have potential, they may be risky because of low liquidity.
11. There is always a chance that a crypto asset may just disappear overnight. There are plenty of assets out there and in a decade's time, many will not be around. Just like the dot-com bubble they too shall burst. So, it is advisable to assess the basics of crypto assets prior to investments.
13. Finally, there are tax-related risks involved. The lack of rules helped people as there was no government to chase them down. But with people wanting to invest in crypto coins now, global regulators are trying to make sure their positions are not threatened. Crypto regulation risks could be the regulation itself or the regulation event risks. Regulations can impact markets eventually and this is something we need to be aware of.