If you are a novice user, you may have entered the crypto world with the hopes or promises of other investors about some type of low-risk cryptocurrency or with claims that you will be able to invest in low-risk cryptocurrencies and make significant profits from them.
Claims like these are made daily and are often made by people looking to attract inexperienced investors to try to invest in some dubious platform or cryptocurrency and scam them in the process.
Currently, there are no cryptocurrencies that can fall within the definition of low-risk crypto assets, perhaps some people consider certain types of cryptocurrencies as low-risk currencies, and among these currencies, we find the majority of stable cryptocurrencies, which are crypto assets designed to that its value does not change over time and is always as close as possible to a pre-established price, which in most cases this price is $1.
But first, we must make something obvious; we cannot take stable coins into account as low-risk crypto investment assets since, as a general rule, these cryptocurrencies are not used to invest or as an investment currency because they have a fixed price these digital currencies are not viable for trading or Hold.
To say that a cryptocurrency is a low risk is very irresponsible since, in this ecosystem, various factors can affect the value of a digital asset and its price. But not everything is so negative since there are cryptocurrencies that are riskier than others, either because of their design, because of their regulations, or because of their consolidation in the market. They can be considered cryptocurrencies with different levels of risk. Still, from the outset, we must be clear that the crypto asset market is one of the riskiest compared to other investment systems.
Why are cryptocurrencies a risky investment?
Cryptocurrencies, in general, are considered high-risk investment assets due to different factors that contribute to price instability. Many of these factors can be studied and, in a certain way, analyzed intending to take advantage of them and make profits through trading or another investment strategy.
At MegaAcademy, we take on the task of compiling the different factors that affect the price or stability of a cryptocurrency and the crypto asset market, among the most influential factors we find.
Speculation: The main risk factor in cryptocurrency is the overflowing speculation surrounding cryptocurrencies. Like many other investment tools, such as over-the-counter markets or futures markets, cryptocurrencies are no strangers to belief, being one of the leading causes of inflated prices at certain times that later explode, causing the price to plummet.
A clear example is Bitcoin, which on several occasions achieved several massive inflows of money by speculators, raising the price in a non-organic way, only to see a sharp drop in prices later. It is because of this and the sum of others. It is typical to see cryptocurrencies like Bitcoin lose 50% of their value from one year to the next.
External Regulations: Although cryptocurrencies are famous for being unregulated and uncentralized digital money, it is increasingly evident that regulations from governments or financial organizations can affect the price or stability of the cryptocurrency market both negatively. Positive, since there are numerous cases of unfavourable and favourable policies that governments have chosen to promote or limit the use of digital assets in their respective territories.
A clear example is the Chinese government’s ban on the use and mining of crypto assets within its territory, which harms the value of significant currencies such as Bitcoin; Another critical example is the case of El Salvador, which decreed Bitcoin as a currency for official use within its territory.
World events: Many would think that because it is a financial resource, it will only be affected by movements within the financial markets, and nothing is further from the truth since the crypto asset market is so complex and delicate that it can be affected by a blow of state in any country, due to the economic consolidation of a superpower like China or due to the economic decline of a Caribbean country like Venezuela.
All these political, economic and sometimes military events can negatively and positively affect the prices of the crypto asset market. For this reason, it is very typical to see analysts taking into account some geopolitical and international economic problems at the moment to forecast a move in the cryptocurrency markets.
Despite painting a gloomy panorama in cryptocurrency investment, it is almost an obligation to speak the truth and prepare all people who want to venture into cryptocurrency investment since being an investment product that can return considerable benefits is also one of the riskiest assets on the market today.
And these risks can be mitigated thanks to other tools offered by the cryptographic ecosystem, such as stable currencies and investment strategies such as Holding or Staking of cryptocurrencies.
This article concludes that if we venture into this investment model, it is necessary to acquire prior knowledge and study in depth the functioning of the cryptocurrency market and its behaviour and avoid promises of miraculous products such as a low-risk cryptocurrency.
A very successful investment strategy is to be open to using stable currencies to reduce the loss of value in our investment. This strategy is used when we observe that our cryptocurrency price drops considerably or has a downward trend.
Like cryptocurrencies, there is no type of investment strategy that guarantees that we will always obtain profits. Still, some methods are less risky than others, such as Hold, which consists of storing cryptocurrencies in a wallet and leaving them without moving for a while to obtain returns from the appreciation of the currency.
In addition to the Hold we explained in the previous question, there is an investment strategy very similar to the Hold called Staking. It consists of storing a specific cryptocurrency and obtaining a kind of interest in having its stored cryptocurrencies.
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