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Methods to reduce Cryptocurrency Inherent Risks

Nxtgen Virtue

Snapshot

  • Regulatory Approvals 
  • Major Trusted Global Organization Adopting Cryptocurrency or Forming an Alliance 
  • Structural Mitigation
  • Framework for Risk Management
  • Education

By now it’s quite inevitable that Cryptocurrency is here to stay, so investors should be aware of the risks associated with Cryptocurrency and should manage accordingly.

In this blog, we will look at methods that could help us avoid the inherent risks of Cryptocurrency. 

Regulatory Approvals 

Even though the entire premise of Cryptocurrency is based on being decentralized currency with no regulatory governance or framework. 

If achieved, regulatory approval would be of great value for the acceptance and credibility of Cryptocurrency in the eyes of investors. To accomplish this, the best place to start would have to be the place of reserve currency, the Us Dollar. For Cryptocurrency to gain traction in the US it must be able to navigate five differing and diverse regulatory frameworks.

  • The SEC
  • IRS (Internal Revenue Services)
  • State banking departments
  • CFTC (Commodity Futures Trading Commission)
  • Financial crimes-related regulations like OFAC (Office of Foreign Asset Control), BSA (Bank Secrecy Act), and USA PATRIOT ACT.     

The best scenario would be to have regulation confirmation from all five but even if at least two of these organizations would approve Cryptocurrency, it would be sufficient to add trust and credibility. 

Major Trusted Global Organization Adopting Cryptocurrency or Forming an Alliance 

Forging alliances, like the one between Bitcoin and Coinbase, or BitPay, where the latter act as wallets for the merchants. Merchants can use these wallets to receive digital payments from clients, and then immediately get paid for the value of those Bitcoins present in their wallets. Forming such alliances will drive more trust and acceptance for Cryptocurrency. 

Structural Mitigation

Cryptocurrency exchanges are platforms that help investors to trade in Cryptocurrency such as Bitcoin. In a general sense, the Cryptocurrency exchanges are not only acting as an exchange but are also acting as a broker and a custodian. If these exchanges added an extra layer of cushion/security for investors, by holding some reserves, for survival during the market crash. It would offer investors an additional layer of protection in times of market uncertainty and volatility. 

Framework for Risk Management

A standard framework for risk management should be created that will cover all policies and standards related to cybercrimes and will also include a Disaster recovery and business continuity program. The framework needs to be enterprise-wide level and to be effective the framework is required to be added in large parts, based on real-time information gathered. 

Education

With all the crime-related Cryptocurrency news surfacing every day on social media, it would be wise to provide people with proper training and education about ways to mitigate cyber risks. Knowledge and information will help in boosting the confidence of the investors. 

Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.

Photo by – Peggy_Marco on Pixabay