Advantages Of Cryptocurrencies And Risks Of The Most Controversial Asset
Seven thousand people gathered at the WiZink Center in Madrid in August. A Bon Jovi or Rosalía concert? Any Real Madrid basketball game? Nothing to see. There were 7,000 people attending a cryptocurrency event, which generated enormous controversy.
The National Securities Market Commission (CNMV) warned that neither the organizing company Mundo Crypto nor several sponsors had licenses to operate as investment entities. A warning that caused the resignation of the two initial presenters of the event Jorge Fernández and Cristina Pedroche. The controversy was served.
Cryptocurrencies continue to be one of the most debated financial assets. Despite the risks involved, there are still many people who believe that they can get rich very quickly thanks to them. Not in vain, cryptocurrencies moved close to 60,000 million euros in Spain in 2021, according to a report by the Bank of Spain.
Following the declines in cryptocurrency prices in recent months, some investors are wondering if they have bottomed out and will start to rise again. Is it the time to invest in cryptocurrencies now? We count some advantages and disadvantages of betting on these assets.
Here are some strengths of investing in cryptocurrencies:
One of the best-known characteristics of cryptocurrencies is the volatility of their prices, since they can quickly appreciate in value or suffer a resounding fall. The rapid movements of prices have achieved that there are investors who have obtained significant sums of money. Thanks to this, they have enjoyed a lot of popularity in recent years. However, it can also lead to the complete loss of the money invested.
There is currently no consensus among analysts on how cryptocurrency prices will behave in the coming years.
Possibility of operating 24 hours a day
Unlike other financial assets, investors can trade the cryptocurrency market 24 hours a day. The transactions take place at the moment in which the user decides to buy or sell said asset.
It is supported by blockchain technology
Cryptocurrencies are digital assets that are based on blockchain technology (chain of blocks, in Spanish). This technology allows the transfer of an asset from one place to another, without the intervention of a third party being necessary. In addition, it provides security and transparency to transactions.
Diversify the investment portfolio
Many investors have turned to cryptocurrencies as a way to diversify their investments. When it comes to investing, diversification is one of the main commandments. By spreading your money across different assets, you’re less likely to take a financial hit if only one of your investments fails. However, if all the money is put into a single asset and it goes under, the investor will lose everything.
These are the main disadvantages of investing in cryptocurrencies:
Constant and sudden fluctuations in the price:
Cryptocurrencies were initially thought to function as uncorrelated assets. That is, their prices did not depend on the fluctuations of the stock market. However, this year has shown that cryptocurrencies tend to trade similarly to other risk-sensitive assets, such as stocks.
The price of cryptocurrencies has also suffered in recent days after the speech of the president of the Federal Reserve , Jerome Powell, in which he assured that the central bank would not stop raising interest rates until inflation is controlled. Even though it seemed that Bitcoin had recovered and was close to $25,000, it has had a sharp drop, like many big indices, and has been around $20,000.
The largest cryptocurrency has stagnated in that trading range after the collapse of cryptocurrencies last spring. They are very far from the levels reached in November 2021, when it was close to $69,000.
Lack of regulation
One of the main problems of cryptocurrencies is the lack of regulation and supervision by the authorities. Cryptocurrencies are a very high risk asset, only suitable for people who are willing to risk a large part of their investment
This lack of regulation means that the money invested in this type of asset is not protected in the event of bankruptcy of the entity, as is the case up to a certain amount with other products such as current accounts and deposits. “Investment in crypto assets is not regulated, it may not be suitable for retail investors and the entire amount invested may be lost,” warns the CNMV.
possibility of fraud
Given the popularity of cryptocurrencies, many scammers are turning to them to defraud individuals who are just looking to make easy money. In the United States alone, more than $1 billion has been stolen from 46,000 people between early 2021 and June 2022, according to the Federal Trade Commission (FTC).
Are you thinking of investing in cryptocurrencies? Cryptocurrencies are not suitable for all types of investment. Finect can put you in contact with a professional financial advisor completely free of charge, who will help you plan your finances and make your savings profitable, as well as prevent you from making mistakes.