Trading Cryptocurrencies: The Associated Risks

Professional traders and analysts in the cryptocurrency space have been quick to point out that investing in any asset class, whether it be traditional securities or cryptocurrencies, comes with its own sets of risks. The same goes for trading these assets: before deciding to trade any instrument or commodity, investors should carefully consider any associated risk factors and thoroughly research their chosen instruments under consideration. News is an essential part of the bank of information they possess. 

Cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Dash (DASH) come with several potential risks involved when trading them. This article will discuss some of the significant issues cryptocurrency traders face and highlight why they may affect users’ portfolios. You can find even more information about crypto on https://nsbroker.com/crypto-info.

Price Fluctuations

Price Fluctuations, of course, one of the biggest concerns for professional traders is dealing with the price fluctuations associated with specific assets. While the cryptocurrency markets are well known for their volatility, specific cryptocurrencies tend to be more stable than others. Bitcoin (BTC), for example, remains one of the more stable currencies out there, having shown a slow trend downwards over several years.

Other coins, however, have shown spikes in value, which can bring an array of risks to traders who are accustomed to trading traditional securities or other commodities. For instance, Dash (DASH) surged from around $1 at the start of 2017 to an all-time high of nearly $500 in early 2018 before dropping back down below $200 since then. This presents an added level of risk for traders who may not have sufficient cash reserves or hold short positions that could be affected by large price swings.

Spoofing

Cryptocurrencies are still relatively new, and as a result, they are susceptible to market manipulation. For example, in September 2017, the US Commodity Futures Trading Commission (CFTC) filed charges against two individuals for alleged spoofing-related activities in the BTC market.

Spoofing is when a trader places orders to manipulate the market price but does not intend to fill those orders. By placing and then cancelling large numbers of orders, spoofers can create an artificial demand or supply in the market, which other traders can then exploit.

Get Started

Try Gemini Today! 123

The Gemini Exchange makes it simple to research crypto market, buy bitcoin and other cryptos plus earn Up to 8.05% APY!

This type of behaviour can cause extreme volatility in cryptocurrency markets. It is something that traders need to be aware of and that, if detected, can result in severe consequences.

Scams & Phishing Attacks

One area of concern for traders is the prevalence of scams or phishing attacks within cryptocurrency exchanges. These types of crimes are prevalent in traditional financial markets. Still, they tend to be more commonplace in cryptocurrencies mainly due to their decentralized nature, which makes them more challenging to regulate.

The most common scam involves setting up fake exchanges that phish users’ account details through malicious websites or apps. There have also been instances where criminals have compromised legitimate exchange accounts by hacking into the system and altering the users’ data. It looks like they have lost access to their login credentials. The data is then used to steal cryptocurrencies from their real owners.

Lack of regulations

Regulators are still struggling to grips with the cryptocurrency markets, which are not subject to the same controls as traditional markets. This has resulted in many conflicting pieces of legislation that have had various implications for traders, especially those who trade on leveraged platforms.

Some countries have chosen to ban the trading of cryptocurrencies outright. In contrast, some have done so indirectly by imposing restrictions on foreign exchanges or requiring regulatory approval for some types of transactions. 

Other countries have chosen to embrace new technologies entirely and actively encourage investment in cryptocurrencies. While this can be seen as an indication that cryptocurrencies are likely to become more widely accepted over time, it also means that there is no uniform approach being taken towards their regulation across different jurisdictions.

This lack of regulation can be both a positive and a negative for traders. On the one hand, it allows them greater freedom to trade as they please without worrying about government restrictions. On the other hand, it also means that there is no guarantee that their funds will be protected in the event of theft or fraud.

Conclusion

While there are several risks associated with trading cryptocurrencies, these risks can be mitigated by taking appropriate precautions. Traders should always do their research before investing in any new asset class and should be especially wary of scams and market manipulation. In addition, they should ensure that they are aware of the regulatory environment in which they are trading and take into account any potential implications for their investments.

If you own Crypto, NFT’s, or any other digital assets in your personal name, you may be open to liabilities you can’t even imagine.