As a novice investor, it is common to ask questions about a particular financial market. What are the disadvantages of cryptocurrency? How do you keep yourself from losing a potential amount of money if you are losing trade? How do you invest in cryptocurrency wherein the risk is lower?
Straightforwardly, all financial markets have their downsides. It is in your personality which disadvantages you are willing to risk and can handle. There is a unique way in every market on how you would play the game or, best to say, your business. This article will take you closer to financial intelligence. Remember that the best investment is investing in knowledge; this investment will pay off higher returns if you grind to be an expert in the market.
If you invested in crypto for trading, the market has a broader range of prices that even if you put a stop loss at a price point, there is a possibility that it would not be hit because of gap ups and gap downs. That would make your smaller losses into a potential one. To avoid losing much money in this market, one should ask, “What are the disadvantages of cryptocurrency” so that you will be prepared for future market scenarios. You also need to have a specific strategy that you will follow no matter the market’s situation.
For example, if you buy coins, you need to have an entry point, selling point, and stop-loss point. For a long market, say, you buy at $500, your target price is $600, and your stop loss point is $450. In this case, you have an RRR of 1:4. You are willing to risk $50 for a return of $200 more to your capital. The same goes if you go shorting, that is when you sell high and wait for the price to go down, and buy possession to cover the coins you sold.
However, in the cryptocurrency market, the spread is vast; yet, you can add more than one stop loss point if your chosen platform has this feature. It is necessary that when you select cryptocurrency as an investment, you know about fundamental and technical analysis. Learning such a skill may take a longer time to acquire, yet the return is unlimited.
Other Side of the Coin
High volatile markets may be a downside to the newbies because they can instantly wipe out capital. Still, it is an opportunity for professional and seriously learning traders to earn more. Volatility and liquidity in the market are essential for technical analysis-relying traders. Volatility means that prices go up and down in a wide range. Liquidity is when many traders are participating in buying and selling. That could also mean the ease of getting out if your bias is not met.
Cryptocurrency transactions are immutable and recorded on every trader/investor’s ledger called blocks. In every transaction, everyone in the market is informed through what they call, public key. In this scenario, transparency is assured while every investor’s block is connected to others, called blockchain technology.
There are those called miners who solved such problems with mathematical algorithms in times of conflict. It is a decentralized system, wherein every investor in the market can be a miner. So, what are the disadvantages of cryptocurrency? Unlike the government’s central banks, which are centralized, the ones leading the monetary policy can investigate fraud and regulate how much paper money is printed. The regulation depends on those leading bodies of the economy. This decentralized system of cryptocurrency can be viewed as a downside and upside.
New Emerging Market
The market developed by Satoshi in 2009 is not yet a stable one. As of our time today, it only has a potential future value that currency is later be all digital just like what China has started. It is anticipated that the 21,000,000 cryptocurrency coins produced in the market will become scarce in the future. As in economics’ term, scarcity can trigger great demands causing the price to go higher. Thus, what are the disadvantages of cryptocurrency?
In its early development stage, the market will undergo ups and downs, or even a recession, just like other financial markets. Likewise, it could also be a significant investment if you know what you are doing well. The big boys invested in cryptocurrency investment hold the asset (if not all) for its future value, not the value of the market today. It is always necessary to not entrust your money to someone on any market if you do not understand its works.
You Need to Keep Your Identity to Yourself
In sending messages to other blocks, you need to attach your signature. Keeping your signature of password to yourself is crucial because if you lose it, or if others know it, you lose your account and your money.
It Doesn’t Pay You Dividend
Unlike other markets, crypto doesn’t pay you dividends because it doesn’t even have centralized controlling bodies that served as overseers on the investors. You cannot invest in it for cashflow as other markets have. How would you maximize return on your investment? If you are engaged in trading, you can either have capital gains or losses. Or you can have capital gains through investing long term. You buy coins today with the expectation that it will become scarce in the future, and when that time comes, and the price goes your way, you sell your possession. In that sense, you can also have a return on your capital. Discover more about cryptocurrency here!
What are the disadvantages of cryptocurrency? When we invest our money, it shouldn’t be mistaken that you can leave your hard-earned income onto someone and wait for it to grow. You have to consider your investment as your business; that is, you are the one who is in full control of your money, you know what’s going on with your money, and you are the one managing your portfolio. You should be fully aware of your investment risks and only take those you can handle. One way to manage the risk is by acquiring the skills needed in managing your portfolio.