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Risks and benefits of cryptocurrency investing in 2022

Private and public investors, including Latin American investors – IQ Coins, are increasingly interested in investing in cryptocurrency and researching this part of the world.

They have vivid examples of billion-dollar fortunes made by those who successfully invested in tokens at the dawn of the market. Crypto-activists very reasonably convince ordinary people that such success can be repeated by almost anyone.

They are right in many respects, but before taking such a step, one should remember that investing in cryptocurrencies in 2022 not only provides certain benefits but also carries serious risks.

Benefits of crypto investing

The main advantages of cryptocurrency investing have long been well known. They have remained unchanged in 2022. The most significant of them include:

Affordability. The entry threshold into crypto investing is still low – they are available to everyone. For example, on the Binance exchange, the minimum transaction volume is virtually unlimited – it is quite possible to spend just a few rubles to buy a token.

A similar picture is observed in online exchanges. It is extremely easy to find resources for buying and selling crypto, and most of them do not require registration and verification – you only need to have a wallet for storing coins.

By the way, it, too, can be opened online in just a few seconds and without giving valid personal information.

Many investment options. It is not only about the variety of tokens for purchase, although it has long exceeded all reasonable limits.

The crypto market offers other investment options, such as mining with your equipment, cloud mining, stacking, development of crypto projects, creation of new coins, and so on.

Profitability. Earning hundreds and thousands of percent annually in the cryptocurrency market is not a problem.

Such results are due to the hype demand for digital assets and the extremely high volatility of known tokens. But new projects promise even greater profits. For ICO and IEO participants, a rise in the value of a coin by several tens of times is quite common.

The deflationary nature of many cryptocurrencies. Increased demand with a limited number of coins in circulation is a good reason to expect an unlimited increase in the price of a coin in the future.

Some analysts say that digital assets are similar to gold in this respect, and as a result, become very interesting objects for investment. This is the nature of bitcoin, which initially has a limited issue limit, and the No. 2 cryptocurrency, Ethereum, is moving toward the same option.

The current year of 2022 will likely only emphasize all of these advantages:

  • More new projects will start to emerge, which will expand opportunities to buy new tokens and invest in them early on.
  • As new investors emerge, crypto exchanges will increase trading volumes, and demand for digital assets will increase, which will certainly not contribute to lower volatility.
  • Perhaps new investment options will emerge.

In short, with a balanced attitude, an investor will be able to realize all the advantages of investing in cryptocurrency.

A side note! Actively developing meta-universes offer huge opportunities for using digital assets, so the prospects of crypto projects may be even more impressive.

Risks of cryptocurrency investing

Crypto investing promises higher returns than any financial market. However, it should not be forgotten that profitability is the price of risk. And there are more than enough risks in the digital asset market.

Among the main ones are:

Lack of a legal framework. This is probably the main risk that keeps any token owner in suspense.

Suffice it to recall that China has completely banned cryptocurrency mining and circulation on its territory, and even outlawed the provision of services by cryptocurrency exchanges to Chinese citizens.

This approach creates a risk for investors to lose all their investments. Other countries (except El Salvador, which has given bitcoin the status of national currency) are still studying the issue and are in no hurry to make any decisions.

High volatility. Volatility is considered a measure of risk in financial markets. With the kind of performance that cryptocurrencies exhibit, investing in this market can be considered the riskiest of all available to private investors.

This is true even when it comes to trading without leverage. But cryptocurrency exchanges are quite legal for marginal trades, futures, and options contracts with collateral.

Of course, many providers in 2021 reduced the maximum available leverage (for example, Bitpanda has set a limit of x20 for most private accounts). But overall, even with this option, the risks increase manifold, and for investors, without proper knowledge and experience, the probability of capital loss is much higher than the chances of making a profit.

Other risks for investors related not to the nature of crypto assets but external causes include:

Storage errors. First and foremost, this refers to the loss of identification data (seed phrases) for wallets.

As a result, the investor loses access to the crypto-asset vault, which cannot be recovered later. This also includes disregard for security requirements, as a result of which unauthorized persons and intruders gain access to the wallets.

Transaction errors. A mistake in filling in the recipient’s details is another common option for losing funds. Blockchain uses technology that makes it impossible to roll back an erroneous transaction (unlike a bank).

In this case, you can only count on the integrity of the recipient

Hacking attacks on crypto exchanges and other platforms, leading to the theft of funds from customers’ wallets opened on them. Hackers also attack the end-user with phishing, ransomware, data-stealing spyware, etc.

Fraudulent projects. More than half of new crypto projects can be qualified as fraudulent. Even among “honest” projects, according to official statistics, after ICOs only 25% of teams succeed and less than 10% of projects stay in business for over a year.

Naturally, all invested in their investors’ funds are lost.

The collapse of the trading floor. The potential for solid profits generates very serious competition between crypto exchanges.

Not everyone can withstand such competition. Some owners of such businesses estimated that in 2021, they needed a daily trading turnover of at least $25 million to stay in the market, which means attracting a corresponding number of clients and volumes of capital.

No wonder such conditions could not be met, and more than 70% of the new sites were closed. It is unlikely that anything will dramatically change for the better in 2022, especially in anticipation of the stricter attitude of regulators to representatives of the crypto market.

Important facts! It is estimated that by the end of 2021, more than 20% of mined bitcoins worth more than $150 billion were placed on wallets that are no longer accessible.

Hacker attacks in the third quarter of 2021 alone caused crypto infrastructure (exchanges, exchanges, etc) to lose more than $1.1 billion of their own and customers’ money.

So, the real risks of investing in cryptocurrency are very high and not everything depends on the owner of digital assets. Before venturing into this market, one should consider whether a crypto investor is ready to bear such risks, which often lead to a total loss of capital.