As More Cryptocurrencies Fail, Few Understand the Risks
The cryptocurrency market has been one of the fastest growing sectors over the last couple of years, with Bitcoin, Litecoin, and Ethereum hogging most of the spotlight. With any new industry, there are going to be growing pains and it’s important for investors to understand the risks of investing in cryptocurrencies and blockchain technology.
Investing in blockchain technology and cryptocurrencies is not for the faint of heart. After years of neglect, Bitcoin experienced an unprecedented bull-run in 2017, with prices for a single bitcoin soaring from the $2,000 level in July to almost $20,000 in December.
Investors, afraid to miss out (just like during the dotcom era) jumped onto the cryptocurrency bandwagon, without fully understanding the risks. And frankly, you can’t blame them. Industry experts were predicting bitcoin would hit $50,000 by the end of 2018.
But the shine started to wear off cryptocurrencies at the start of 2018, with bitcoin prices losing almost 70% of its value. If a cryptocurrency investor bought at the top and was still holding on, bitcoin prices would need to increase 205% just for that investor to break-even.
It’s been a tough year for cryptocurrency and blockchain companies in general. While initial coin offering (ICO) volume is up more than double that of 2017, the industry is fraught with failure. More than 1,000 projects have failed in 2018, meaning, they trade for less than one cent. Some died because of organizational incompetence while others were total pump and dump scams.
Even the most well-intentioned investors have lost a lot of money investing in cryptocurrency and blockchain technology. What’s worse, many investors have jumped into cryptocurrencies without fully understanding the risk.
According to the Ontario Securities Commission, five percent of Ontarians, or over half a million people, currently own some form of cryptocurrencies—but do not really understand the risks. In fact, only five percent of those who own cryptocurrency could explain the details of cryptocurrency to someone else.
That’s a recipe for disaster.
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The cryptocurrency market is still in its infancy and will continue to experience growing pains.
While that’s good news for cryptocurrency and blockchain bulls, the market will continue to be volatile and investors need to tread cautiously. After all, investing is investing, whether it’s stocks, commodities, cryptocurrencies, futures, etc. And investors need to understand what they’re investing is. You can leave that up to the expert traders at Learn-To-Trade.com.
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Photo Credit: iStock.com/Marc Bruxelle