There will be various types of crypto trading and investment risks in 2022
- ByStartupStory | January 16, 2022
While many were pretty sceptical of digital assets competing with traditional assets, cryptocurrencies have grown in popularity. The trend began with a few well-known cryptocurrency names, and yet new currencies are introduced every year.
You should be cognizant of the volatile nature of cryptocurrencies, as well as potential security, legal, accounting, and tax issues. We’ll go over the potential risks of cryptocurrency investing and how to manage the risks of cryptocurrency trading in the sections that follow.
High volatility
Volatility is defined as abrupt changes in market sentiment that can cause significant and rapid price movements.
Volatility isn’t limited to the cryptocurrency market. They can be found in other financial sectors as well, but the intensity and spread are greater in the crypto space. The high volatility in the concerned asset class can be attributed to a number of factors, including its nascent schematics when compared to other types of investment.
Lack of regulations
In 2021, the country’s legal stance on cryptocurrencies was quite tumultuous, with the ultimate question being “to regulate or not to regulate crypto assets.” While speculation and false news about the topic caused the stock market to plummet, the government ultimately decided to hold the horses for the time being.
There are substantial differences in the legal premise of digital currencies among regulatory agencies, which may determine the future of cryptocurrency in India. Regulators are concerned that criminals and terrorist groups may use bitcoin and other cryptocurrencies. On the other hand, some regulators advocated for increased awareness and use-cases of the underlying technologies, while others advocated for a more accommodating regulatory approach.
Finally, there is no denying that effective regulations will improve investor protection and reduce risks over time.
Market risks
Crypto assets, like other commodities, are vulnerable to market volatility. The risks associated with cryptocurrency trading are divided into two categories: systematic risks and unsystematic risks. Because the crypto markets are inherently risky, systematic risk exists in all cryptocurrencies. A change in the company’s fundamentals could be an example of unsystematic risk, which is specific to a single crypto asset.
Tax-based concerns
The tax status of cryptocurrency investments and returns is a subject of debate. Bitcoins and other cryptocurrencies may be classified as assets in some jurisdictions and currency in others, depending on the jurisdiction.
For e.g, El Salvador has legalised Bitcoin as a form of payment. Trading in virtual currencies is legal in some countries, such as the US and Canada. China and Russia, on the other hand, have made trade practices illegal.
Sales or value-added taxes may apply to purchases and transactions in digital currency, for example (VAT). Digital currency investors may need to seek tax advice on a regular basis, depending on where they are tangoing.
Cyber-threats
While cryptocurrency may herald the start of a new era, it also has a less-publicized counterpart: cybercrime. Because cryptocurrencies are completely decentralised, crypto holders’ cyber hygiene and security are of the utmost importance.
In the crypto world, “abnormal disappearances” and ransomware attacks are both complicated and fast-moving threats, and newcomers to the ecosystem are frequently targets. As a result, it is necessary to be aware of these risks before entering the crypto world.
It’s critical to be aware of the security measures taken by the exchanges in which you invest, as well as the safeguards they employ. Furthermore, platforms such as CoinSwitch Kuber prioritise security and have a strict mandatory KYC procedure in place to ensure transparency and maximum security.
Follow Startup Story
Related Posts
