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What are the disadvantages of cryptocurrencies?


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Disadvantages of Cryptocurrency Investing High Volatility: Cryptocurrency markets are highly volatile, which means prices can fluctuate quickly and unpredictably. Investors who are not prepared for market volatility could suffer significant losses as a result. Lack of regulation: Cryptocurrencies operate outside of traditional financial markets, which means there is little regulation regulating their use.

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1 hour ago, Qmiax said:

Disadvantages of Cryptocurrency Investing High Volatility: Cryptocurrency markets are highly volatile, which means prices can fluctuate quickly and unpredictably. Investors who are not prepared for market volatility could suffer significant losses as a result. Lack of regulation: Cryptocurrencies operate outside of traditional financial markets, which means there is little regulation regulating their use.

As cryptocurrencies continue to gain attention, traders have begun finding ways of protecting their bitcoin holdings from risk. Find out how to hedge bitcoin risk – including three cryptocurrency hedging strategies.

How to Short Crypto | IG International

What are the risks of trading cryptocurrencies?

There are a variety of reasons that cryptocurrencies, such as bitcoin (BTC), are considered risky. These include:

  • Lack of regulation. As cryptocurrencies are decentralised, banks and governments have yet to understand how best to protect traders and investors who choose to buy and sell the assets. The decentralised nature of bitcoin has thrilled its supporters, but it could create legal and taxation issues as it grows in popularity
  • Susceptibility to hacking. A considerable number of cryptocurrencies are stolen from digital wallets every year. In 2018 alone, it is estimated that $1.7 billion worth of cryptos were stolen and there is rarely a way to retrieve these losses
  • Reliance on technology. Bitcoin and other cryptos are completely digital assets, which means that they are essentially worthless without access to technological resources. With gold, real estate or even shares, you are gaining ownership over something that can be exchanged, whereas cryptocurrencies have no collateral backing them up
  • Market volatility. Cryptocurrencies are notoriously volatile, both in intraday trading and over longer periods. For example, bitcoin’s price experienced a sharp spike in December 2017, reaching a high of $19,763.50, before falling to a low of $3126.29 in December of the following year

However, for those keen enough to learn, there are ways to reduce the risk you take on, at least to a known amount. This is where risk management tools, such as stop-losses, and strategies, such as hedging come in.

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