Business / Your Money
What can go wrong with your crypto investment?
10 Jan 2023 at 11:16hrs | Views
It may be virtual money, but the value of a cryptocurrency can never be negative. To put it simply, a cryptocurrency's value cannot go below $0.
As a consequence, investors should be aware that the cryptocurrency market is very volatile, and they run the risk of losing a substantial amount of money if they choose to engage in high-risk techniques like short-selling or margin trading.
Can a currency like Bitcoin ever be worthless? Not technically, but if an investor doesn't completely grasp the dangers of this volatile market, their account might go into the red.
Can Crypto Go Negative?
What makes cryptocurrency trading appealing to high-risk investors is that it's one of the most volatile investing options. The completely unregulated crypto market has the potential to generate enormous gains for some but may also result in catastrophic losses for others.
All reliable crypto platforms always encourage their users to invest wisely and anticipate potential risks when dealing with such volatile assets as cryptocurrencies. Therefore, it's essential to use an app or a website that is secure and equips you with the right trading tools and knowledge. While this sounds like a lot of work to do, crypto websites such as bitcoin-up.io help you connect with a broker and set you up for the challenging investment journey.
As an example, in the year 2021 alone, Bitcoin (BTC) fell to a low of $29,000 and soared to a new high of $67,000. Then, Bitcoin fell to $35,000 by January 2022, a 50% decline from its high in November 2021. This is just one illustration of how volatile a single cryptocurrency can be, although this sort of movement is widespread throughout most types of crypto.
Might cryptocurrency potentially lose value? Short answer: no. But your investment account may. Virtual and real assets can never be valued lower than zero. That includes things like property, security, and money. So the lowest price a cryptocurrency can possibly reach is zero cents.
However, this does not imply that an investor will not lose money by investing in cryptocurrencies. Investors' crypto accounts may go negative if they create a short position or trade on a margin account, two tactics that require leverage, i.e. debt. Thus, you should be careful while utilising leverage.
Leverage is borrowing money from your broker-dealer to purchase assets in the belief that their price will rise (or fall in the case of short selling), and you will earn money.
In most cases, investors may buy more of an asset using margin funds, which are given to them at a particular interest rate. This means that the investor may make a big profit, pay off their debts, and keep their profits if their security grows in value above what they paid for it (plus the interest charged on the margin account).
The catch, however, is that if the asset's price falls below the purchase price, the investor will be liable for the whole amount they borrowed plus interest.
It's true that people may lose bitcoin, but it's not because the value of a coin might plummet so low that it's submerged. Instead, cryptocurrencies are subject to hacking and might be lost as a result of human mistakes.
It's important to know how the blockchain works, as well as how cryptocurrency wallets function.
Can the Blockchain Be Hacked?
With the debut of the Bitcoin virtual currency in 2009, blockchain technology was born. This decentralised network of computers facilitates the creation and trade of a variety of cryptocurrencies. When it comes to cryptocurrencies, each has its own blockchain, such as Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), or Ada (ADA).
There is no need for a bank or government body to validate the buying, selling, or crypto payments and other transactions in most cryptocurrencies since they are decentralised. The Securities and Exchange Commission (SEC) does not currently regulate most kinds of cryptocurrencies, although that might change in the future.
The platforms are essentially monitored by the individuals who control the crypto.
Self-policing systems like blockchains and cryptocurrency exchanges function well until they don't - and millions of dollars worth of cryptocurrency have been stolen in well-publicised hacks. The hackers were able to "print" more coins by tricking the system in certain situations (sort of like digital counterfeit).
There is nothing that individual traders can do, but crypto platforms are always developing new methods to protect investors' coins.
Losing Your Keys
Then there's the fact that human mistakes may have a negative influence.
When you acquire bitcoin, you hold the private key, which is a long string of numeric and alphabetic characters that only you have access to. Without private keys, you cannot purchase, sell, or trade your crypto.
Sadly, some individuals have lost all of their currencies because they misplaced the private keys to their crypto. For example, a survey in January 2021 indicated that 20% of the 18.5 million bitcoin had been misplaced or was otherwise unavailable.
Since crypto platforms and exchanges are not governed by any laws, investors are at risk due to a lack of legal protection provided by crypto platforms and exchanges. The Federal Deposit Insurance Corporation (FDIC) protects up to $250,000 of your money in a typical checking or savings account, but that's not necessarily the case with crypto exchanges.
To keep your cryptocurrency safe, certain crypto exchanges may store it offline. Depending on the exchange, you may be able to get FDIC coverage for your custodial account up to $250,000, but the conditions are different. Investors are often responsible for determining how safe their crypto is and how much risk they're willing to take. There is an average daily loss of $2.7 million for exchanges.
There are certain exchanges that are more secure compared to others. Valid HTTPS certificates, two-factor authentication (2FA), cold storage, and whitelisted IP and withdrawal addresses are all features of the best ones.
Using a private crypto wallet and regularly backing it up is your best bet when it comes to avoiding cyberattacks.
Conclusion
Although the value of a cryptocurrency may never be negative in the strictest sense, traders who utilise tactics like margin trading or futures contracts trading run the risk of losing money.
Risk reduction measures like stop losses and hedging are available to astute investors.
While cryptocurrency is primarily unregulated, there are still several methods to generate money utilising crypto. Fake crypto schemes, however, are aplenty.
According to the Federal Trade Commission, between October 2020 and May 2021, more than 7,000 consumers reported losses totalling over $80 million, with an average loss of $1,900. As a result, the phrase "buyer beware" applies.
Cryptocurrency investors have the option of protecting themselves by joining up for a reliable trading platform and investigating various investment options.
As a consequence, investors should be aware that the cryptocurrency market is very volatile, and they run the risk of losing a substantial amount of money if they choose to engage in high-risk techniques like short-selling or margin trading.
Can a currency like Bitcoin ever be worthless? Not technically, but if an investor doesn't completely grasp the dangers of this volatile market, their account might go into the red.
Can Crypto Go Negative?
What makes cryptocurrency trading appealing to high-risk investors is that it's one of the most volatile investing options. The completely unregulated crypto market has the potential to generate enormous gains for some but may also result in catastrophic losses for others.
All reliable crypto platforms always encourage their users to invest wisely and anticipate potential risks when dealing with such volatile assets as cryptocurrencies. Therefore, it's essential to use an app or a website that is secure and equips you with the right trading tools and knowledge. While this sounds like a lot of work to do, crypto websites such as bitcoin-up.io help you connect with a broker and set you up for the challenging investment journey.
As an example, in the year 2021 alone, Bitcoin (BTC) fell to a low of $29,000 and soared to a new high of $67,000. Then, Bitcoin fell to $35,000 by January 2022, a 50% decline from its high in November 2021. This is just one illustration of how volatile a single cryptocurrency can be, although this sort of movement is widespread throughout most types of crypto.
Might cryptocurrency potentially lose value? Short answer: no. But your investment account may. Virtual and real assets can never be valued lower than zero. That includes things like property, security, and money. So the lowest price a cryptocurrency can possibly reach is zero cents.
However, this does not imply that an investor will not lose money by investing in cryptocurrencies. Investors' crypto accounts may go negative if they create a short position or trade on a margin account, two tactics that require leverage, i.e. debt. Thus, you should be careful while utilising leverage.
Leverage is borrowing money from your broker-dealer to purchase assets in the belief that their price will rise (or fall in the case of short selling), and you will earn money.
In most cases, investors may buy more of an asset using margin funds, which are given to them at a particular interest rate. This means that the investor may make a big profit, pay off their debts, and keep their profits if their security grows in value above what they paid for it (plus the interest charged on the margin account).
The catch, however, is that if the asset's price falls below the purchase price, the investor will be liable for the whole amount they borrowed plus interest.
It's true that people may lose bitcoin, but it's not because the value of a coin might plummet so low that it's submerged. Instead, cryptocurrencies are subject to hacking and might be lost as a result of human mistakes.
It's important to know how the blockchain works, as well as how cryptocurrency wallets function.
Can the Blockchain Be Hacked?
With the debut of the Bitcoin virtual currency in 2009, blockchain technology was born. This decentralised network of computers facilitates the creation and trade of a variety of cryptocurrencies. When it comes to cryptocurrencies, each has its own blockchain, such as Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), or Ada (ADA).
There is no need for a bank or government body to validate the buying, selling, or crypto payments and other transactions in most cryptocurrencies since they are decentralised. The Securities and Exchange Commission (SEC) does not currently regulate most kinds of cryptocurrencies, although that might change in the future.
The platforms are essentially monitored by the individuals who control the crypto.
Self-policing systems like blockchains and cryptocurrency exchanges function well until they don't - and millions of dollars worth of cryptocurrency have been stolen in well-publicised hacks. The hackers were able to "print" more coins by tricking the system in certain situations (sort of like digital counterfeit).
There is nothing that individual traders can do, but crypto platforms are always developing new methods to protect investors' coins.
Losing Your Keys
Then there's the fact that human mistakes may have a negative influence.
When you acquire bitcoin, you hold the private key, which is a long string of numeric and alphabetic characters that only you have access to. Without private keys, you cannot purchase, sell, or trade your crypto.
Sadly, some individuals have lost all of their currencies because they misplaced the private keys to their crypto. For example, a survey in January 2021 indicated that 20% of the 18.5 million bitcoin had been misplaced or was otherwise unavailable.
Since crypto platforms and exchanges are not governed by any laws, investors are at risk due to a lack of legal protection provided by crypto platforms and exchanges. The Federal Deposit Insurance Corporation (FDIC) protects up to $250,000 of your money in a typical checking or savings account, but that's not necessarily the case with crypto exchanges.
To keep your cryptocurrency safe, certain crypto exchanges may store it offline. Depending on the exchange, you may be able to get FDIC coverage for your custodial account up to $250,000, but the conditions are different. Investors are often responsible for determining how safe their crypto is and how much risk they're willing to take. There is an average daily loss of $2.7 million for exchanges.
There are certain exchanges that are more secure compared to others. Valid HTTPS certificates, two-factor authentication (2FA), cold storage, and whitelisted IP and withdrawal addresses are all features of the best ones.
Using a private crypto wallet and regularly backing it up is your best bet when it comes to avoiding cyberattacks.
Conclusion
Although the value of a cryptocurrency may never be negative in the strictest sense, traders who utilise tactics like margin trading or futures contracts trading run the risk of losing money.
Risk reduction measures like stop losses and hedging are available to astute investors.
While cryptocurrency is primarily unregulated, there are still several methods to generate money utilising crypto. Fake crypto schemes, however, are aplenty.
According to the Federal Trade Commission, between October 2020 and May 2021, more than 7,000 consumers reported losses totalling over $80 million, with an average loss of $1,900. As a result, the phrase "buyer beware" applies.
Cryptocurrency investors have the option of protecting themselves by joining up for a reliable trading platform and investigating various investment options.
Source - Byo24News
