- Crypto Risks
Cryptocurrencies and blockchain have created a lot of hype and garnered the attention of a lot of people around the world. Nonetheless, there are a lot of risks that are associated with this asset, acting as a roadblock in the broader market adoption and stability. Some such risks that are associated with cryptocurrencies and are acting as a roadblock in market progress are discussed below:
- Wide entrance, narrow exit: With more than 2400 cryptocurrencies in the market, the entry point to enter the market is very low. A low entry point creates a wide entrance and a very narrow exit. This narrow exit can cause panic among the people, at times when everyone is looking to sell their assets. Restrictions on exit can be due to technological constraints, currency inconvertibility, and counterparties with whom trade is being made.
- Uninsured, Intangible, Illiquid: Decentralized currency like Bitcoins, does not have any issues related to double counting because of its blockchain technology. However, the intangible and illiquid nature of cryptocurrencies along with narrow point exit obstructs the insurability and convertibility of cryptocurrency. Even though many insurance companies have begun to show interest in the crypto sector, most of the crypto-assets and crypto companies are uninsurable or are underinsured by today’s standards.
- Care, Custody, and Control: One of the biggest issues that are associated with the crypto market is care, custody, and control. In the crypto market, crypto custodians are competing with one another to provide better security for digital assets. But the number of hacks that have occurred in the past only suggests that there is a lot to be achieved in this field. Crypto investors who have money are using every trick in the playbook to keep their investments safe. But crypto investors who cannot afford to provide high security to their assets become a target.
- Cyber risks: Cyber threat has always been around and securing the assets of an investor should be the primary objective. Where Bitcoin blockchain has stood immune to all the security threats, other cryptocurrencies that are new and are not as efficient in offering cyber security standards are vulnerable to attacks from hackers.
- Forgetfulness: Given the nature of humans, it is common for people to have password amnesia. In the crypto market, this could result in something very devastating as password amnesia would cause loss of crypto fortune.
- Unsafe Havens: Another key risk that is associated with cryptocurrency is the absence of or lack of clarity regarding the regulations, tax, and legal treatment related to cryptocurrencies. Lack of clarity has created uncertainty among the investors and has also acted as an obstacle in the widespread adoption of cryptocurrency.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investment.
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